Overview
- Japan reported a record monthly fall in foreign reserves in August, with Ministry of Finance data showing reserves at about $1.208 trillion after the sales.
- Tokyo spent roughly ¥15.4 trillion on yen-buying operations between July 30 and August 26 to stop the yen’s slide from around ¥164 to stronger levels in early August.
- To fund the intervention, Japan liquidated large holdings of foreign securities, mainly U.S. Treasuries, producing one of the biggest monthly drops in those assets on record.
- Japanese and U.S. officials said Washington coordinated with Tokyo and noted the Federal Reserve’s FIMA/repo facility is available as a dollar backstop to ease pressure on outright Treasury sales.
- Markets and policymakers are watching for further sales because continued reserve liquidation could lift U.S. Treasury yields, push up borrowing costs for households and firms, and increase pressure on the Bank of Japan to change policy.