By Makiko Yamazaki
TOKYO, Sept 7 (Reuters) – Japan’s foreign reserves posted their biggest-ever drop in August, government data showed on Monday, after Tokyo launched another round of record dollar-selling, yen-buying intervention to stem persistent weakness in its currency.
The reserves stood at $1.208 trillion at the end of August, down by a record $79.6 billion, or 6.18%, from $1.287 trillion a month earlier, according to the Ministry of Finance (MOF) data.
The decline was led by a drop in foreign securities, held mostly in U.S. Treasuries bought during dollar-buying intervention conducted around two decades ago, which account for about 70% of Japan’s reserves.
Japan spent 15.4 trillion yen ($98.66 billion) on intervention between July 30 and August 26, marking the largest intervention operation on record in a single month, separate MOF data showed last month.
The intervention helped lift the yen from 40-year lows near 164 per dollar to as high as 155.20 by August 3. The Japanese currency subsequently weakened toward 160 before recovering to around 155 to 156 in early September.
Part of the yen-buying operation was conducted jointly with the United States, the first coordinated intervention by the two countries since 2011, surprising markets that had seen little prospect of such action.
To soothe market concern about the limits of Japan’s capacity for large-scale intervention, Tokyo and Washington have said Japan could utilise a COVID-19 era Federal Reserve backstop for major central banks.
The Fed facility, introduced in 2020 to steady markets during the pandemic, allows Japan to raise dollar liquidity without outright sales of U.S. Treasuries, potentially easing funding pressure on Tokyo for intervention.
($1 = 156.0900 yen)
(Reporting by Makiko Yamazaki; Editing by Muralikumar Anantharaman)
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