Japan’s FX reserves drop to record low on market shakeout and FX intervention

TOKYO (Reuters) – Japan’s foreign exchange reserves fell by a record $54 billion in September, official data showed on Friday. This is because global market turmoil has lowered the value of foreign bonds, prompting dollar-selling intervention to prevent the yen from depreciating sharply. .

Reserves stood at $1.238 trillion at the end of September, the lowest since the end of March 2017, according to Treasury Department data.

Data on the world’s second-largest foreign exchange reserves after China showed another finance ministry figure showed Tokyo spent a record ¥2.8 trillion ($19.32 billion) on market interventions last month. announced a week later.

Markets speculate that the Japanese government sold US Treasuries as it intervened to sell the dollar after the yen plummeted to its lowest level in 24 years against the dollar. His MOF data on Friday appeared to back up that assumption as it showed a record drop in the value of securities, including Treasuries held as reserves.

However, Finance Minister Shunichi Suzuki declined to confirm whether US Treasuries were sold as part of the dollar-selling intervention.

Suzuki said at a press conference, “The reasons for the decline include the decline in the securities market value due to a significant rise in bond yields, the decline in the dollar value of euro-denominated assets due to the euro’s depreciation against the dollar, and the selling of foreign currencies due to intervention. ‘ said.

“We cannot comment on transactions related to intervention. We will manage our reserves with a focus on safety and liquidity.”

FED Slipstream

For much of this year, especially in the past few months, the US dollar has hit record highs against many rival currencies, causing turmoil in financial markets on the back of the Federal Reserve’s aggressive tightening policy. . The spike in global inflation behind the Fed’s actions is depressing the value of bonds around the world.

Data released this week show foreign exchange reserves in other Asian countries fell as officials stepped in to counter the won’s depreciation to a 13-and-a-half-year low, with South Korea posting the second-largest monthly decline on record. showed that China and Indonesia also saw his reserves dwindle in September.

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

The Ministry of Finance has not disclosed the currency composition of its foreign exchange reserves, but it is believed to be mostly U.S. dollars, given its past practice of intervening to buy dollars and sell yen to prevent a strong yen from hurting exporters. ing.

In Japan, which has long expected exports of automobiles and electronics to be the main drivers of economic growth, yen-buying and dollar-selling interventions were rare.

Policy makers are now more concerned about the impact of a sharp and unilateral depreciation of the yen on the initial economic recovery from the COVID-19 pandemic. This drives up the cost of living and makes business planning difficult.

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

Investors will be reviewing daily intervention data for the July-September period scheduled for November to see if the authorities conducted a “stealth intervention” or intervened without official announcement. I am watching.

Japan had not intervened to sell the dollar or buy the yen since 1998, but when authorities intervened in the market on September 22, the Japanese currency plummeted to a 24-year low of around ¥146 to the dollar. Did.

(1 dollar = 144.9500 yen)

Report by Satoshi Kajimoto. Edited by Shri Navaratnam and Sam Holmes

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