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Record Drop in Foreign Reserves: Japan Fights Weak Yen
8 Sep
Summary
- Foreign reserves dropped by a record $79.6 billion in August.
- Japan spent 15.4 trillion yen on currency intervention last month.
- Coordinated intervention with the U.S. occurred for the first time since 2011.
Japan's foreign reserves experienced their most significant ever decrease in August, shedding $79.6 billion. This substantial drop to $1.208 trillion followed aggressive yen-buying interventions by Tokyo aimed at stabilizing the weakening national currency. The government's intervention operations between July 30 and August 26 amounted to approximately 15.4 trillion yen, representing the largest monthly intervention on record.
These actions successfully boosted the yen from historic lows against the dollar. A significant development during this period was Japan's joint intervention with the United States, the first such coordinated effort since 2011. This action surprised markets and underscored the seriousness of the currency's decline.
To reassure markets about its intervention capabilities, Japan and the U.S. highlighted Japan's access to a Federal Reserve backstop facility. Introduced in 2020, this facility allows Japan to secure dollar liquidity without directly selling its U.S. Treasury holdings, potentially easing funding pressures for future interventions.
