Japan’s foreign reserves fall record low with market turmoil and currency market intervention

  • Japan’s foreign exchange reserves fall for two consecutive months
  • Japan’s reserves of 1.238 trillion dollars are the second largest after China
  • The drop in reserves comes after last month’s currency market intervention
  • The authorities are silent on speculation about the sale of US Treasuries

TOKYO (Reuters) – Japan’s foreign reserves fell by a record $54 billion in September, official data showed on Friday, as global market turmoil weighed on the value of foreign bonds and prompted dollar-selling intervention to stem a sharp drop in the yen. .

Reserves amounted to $1.238 trillion at the end of September, the lowest amount since the end of March 2017, according to Finance Ministry data.

The data on Japan’s foreign reserves, the world’s second largest after China, came a week after separate Finance Ministry figures showed Tokyo spent as much as 2.8 trillion yen ($19.32 billion) on market intervention last month.

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Markets are speculating that Tokyo has sold off US Treasuries in a dollar selling intervention after the yen fell sharply to a 24-year low against the dollar. Friday’s Treasury data appeared to support this assumption, as it showed a record drop in the value of securities, including US Treasuries, held in reserves.

However, Finance Minister Shunichi Suzuki refused to confirm whether US bonds were sold as part of its intervention in selling the dollar.

“Factors underlying the declines included the decline in the market value of securities due to large increases in bond yields, depreciation of euro-dollar assets due to the depreciation of the euro against the dollar, and the sale of foreign currencies under the intervention,” Suzuki told reporters.

“I cannot comment on transactions related to the intervention. We will manage the reserves by paying attention to safety and liquidity.”

FED SLIPSTREAM

For most of this year, and especially over the past few months, the US dollar has jumped to record highs against several rival currencies on the back of the Fed’s hawkish policy tightening, causing a jolt in the financial markets. Rising global inflation, which is behind the Fed’s action, has caused the value of bonds to plummet around the world.

Data released this week showed a decline in foreign reserves in other Asian economies with South Korea posting its second-largest monthly drop ever as authorities intervened to counter the won’s drop to its lowest level in 13-1/2 years. China and Indonesia also saw their reserves decline in September.

Japan’s foreign reserves consist of cash deposits held in overseas central banks and the Bank for International Settlements (BIS), securities including US Treasuries, gold, the IMF’s reserve position and Special Drawing Rights (SDRs).

The Ministry of Finance did not disclose the composition of currencies in the reserves, which are believed to be mostly in US dollars from the previous practice of buying dollars, interfering with selling the yen to prevent a strong yen from hurting exporters.

Intervention in buying yen and selling dollars has been rare in Japan, which has long relied on car and electronics exports as a major driver of economic growth.

Now, policy makers are more concerned about the impact of a sharp unilateral weakness of the yen on the economic recovery stemming from the COVID-19 pandemic as it drives up the cost of living while making it difficult for business planning.

The previous record amount for a one-day intervention was 2.6 trillion yen spent in April 1998 during the 1997-98 Asian financial crisis.

Investors are closely watching the daily July-September intervention data due in November to see if the authorities have implemented a “covert intervention,” or are intervening without an official announcement.

Japan had not intervened in selling dollars and buying yen since 1998, until the authorities entered the market on September 22 when the Japanese currency fell sharply to its lowest level in 24 years near 146 yen to the dollar.

(1 dollar = 144.9500 yen)

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Tetsushi Kajimoto reports. Editing by Shree Navaratnam by Sam Holmes

Our criteria: Thomson Reuters Trust Principles.

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