Photo courtesy of Anadolu
Japan’s foreign reserves suffered a steep decline in August after authorities mounted their largest-ever monthly currency intervention to prop up the weakening yen.
Reserve assets stood at $1.208 trillion as of Aug. 31, down $79.6 billion or 6.2 percent from a month earlier, according to data from Japan’s Finance Ministry.
The drop followed an aggressive round of yen-buying intervention between July 30 and Aug. 26. Authorities spent the equivalent of about $99 billion during the period as they sought to curb pressure on the Japanese currency.
Japan typically funds such intervention by selling foreign-currency assets and buying yen. The reserve figures, however, do not show how much of August’s decline came directly from intervention, changes in asset valuations or transactions involving securities.
Foreign-currency reserves remained the largest component of Japan’s holdings at $994.98 billion. Of this amount, $839.56 billion was held in securities and $155.42 billion in deposits.
Japan also reported $124.10 billion in gold reserves, $61.17 billion in International Monetary Fund special drawing rights and an IMF reserve position worth $11.42 billion.
The scale of the decline underscores the cost of repeatedly intervening in currency markets. Japan nevertheless retains one of the world’s largest pools of foreign-exchange reserves, giving authorities substantial resources should they decide further action is necessary.
Attention now turns to the Bank of Japan’s Sept. 17-18 policy meeting. Any shift toward higher interest rates could affect the yen more fundamentally by narrowing the gap between Japanese and overseas yields, potentially reducing some of the pressure that prompted Tokyo’s latest intervention.