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Japan's Reserves Plunge After Record Yen-Buying Intervention

Tokyo funded large-scale yen support by selling foreign securities, a step that could push U.S. Treasury yields higher.

Japanese Yen and U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
Image
Photo: Pratikxox / Pexels
FILE PHOTO: Holograms, which show different images and colours depending on the angle at which they are viewed, are seen on the new Japanese 1,000 yen banknote as the new note is displayed at a currency museum of the Bank of Japan, on the day the new notes of 10,000 yen, 5,000 yen and 1,000 yen went into circulation, in Tokyo, Japan July 3, 2024. REUTERS/Issei Kato/Pool/File Photo/File Photo

Overview

  • Japan's foreign reserves fell to about $1.208 trillion at the end of August, the largest single-month drop on record reported by the Ministry of Finance.
  • The decline reflected roughly ¥15.4 trillion of yen-buying intervention conducted between July 30 and Aug. 26 that aimed to stop the yen's slide from 40-year lows.
  • Tokyo financed much of the operation by trimming foreign securities holdings, which market estimates say include a large share of U.S. Treasuries.
  • Part of the July intervention was coordinated with the United States, and officials have pointed to the Federal Reserve's FIMA repo facility as a way to get dollars without selling Treasuries outright.
  • The interventions and bond sales have raised the risk of higher global yields and could force Japanese investors to repatriate funds or change allocations, which would affect markets and households that rely on pension and savings returns.