Japan’s foreign exchange reserves stood at $1.2075 trillion (approximately ¥188 trillion) at the end of August, down 6.18% from the end of July, according to data released by the Ministry of Finance on the 7th. The percentage decline was the largest since comparable records began in April 2000. The figures reflect the drawdown of foreign currency holdings resulting from the yen-buying, dollar-selling currency intervention conducted jointly by the Japanese government and the Bank of Japan with the United States on July 31 U.S. Eastern Time.
Foreign exchange reserves have now declined for four consecutive months. The August decrease of $79.5 billion (approximately ¥12.4 trillion) was also the largest on record. Breaking down the figures, foreign securities including U.S. Treasuries fell by $87.7 billion (approximately ¥13.7 trillion) from the previous month-end to $839.5 billion (approximately ¥130.9 trillion). Both the magnitude and percentage decline in securities holdings were the largest ever recorded.
The May-end decline reflecting the April–May yen-buying intervention was $77.1 billion (approximately ¥12 trillion), or 5.6%, but the August-end figures exceeded this in both absolute amount and percentage terms. Because U.S. Treasury transactions typically settle on a delayed basis, the intervention impact was not fully reflected in the end-July reserve figures, and instead showed up substantially in the end-August numbers.
According to Ministry of Finance data, currency intervention between July 30 and August 26 totaled ¥15.3993 trillion. This exceeded the ¥11.7 trillion conducted in April–May, making it the largest yen-buying intervention on record. The government likely sold U.S. Treasuries to secure dollar funding for the yen-buying operations, though the Ministry of Finance has not disclosed transaction details.
The late-July intervention was conducted in coordination with the United States. The joint yen-buying action by Japan and the U.S. is seen as a decision reflecting the impact that rapid yen volatility could have on both economies.
In a fiscal consultation document released on August 3, the Ministry of Finance referenced the potential future use of the Federal Reserve’s “Foreign and International Monetary Authorities (FIMA) Repo Facility,” which supplies dollars against U.S. Treasury collateral. The mechanism allows Japan to obtain dollar funding without selling U.S. Treasuries in the open market, and is seen as an effort to diversify the means of securing intervention resources.
The sharp decline in foreign exchange reserves underscores the scale of the intervention, while potentially heightening market attention on Japan’s remaining capacity for future intervention. Japan holds one of the world’s largest foreign reserve stockpiles, and current levels do not pose an immediate problem for intervention capability. However, if securities drawdowns continue, concerns may emerge over investment management challenges, including expanding unrealized losses on U.S. Treasuries in a rising interest rate environment.
In currency markets, yen depreciation pressure remains persistent, driven by the divergence in monetary policy direction between Japan and the United States. Market participants will continue to watch closely what levels or pace of volatility the Japanese government and Bank of Japan deem unacceptable, and how the frequency and scale of intervention affect the trajectory of foreign exchange reserves.
