Japan's foreign reserves suffer biggest-ever drop after record intervention

Japan's foreign reserves recorded their largest monthly decline ever in August after Tokyo launched a record operation to sell dollars and buy yen.

The reserves stood at $1.208 trillion at the end of the month, down $79.6 billion, or 6.18%, from $1.287 trillion in July, according to Ministry of Finance data. The fall was driven mainly by a decline in foreign securities, most of them U.S. Treasuries acquired during dollar-buying interventions about two decades ago. Those securities account for roughly 70% of Japan's reserves.

Separate ministry data showed that Japan spent 15.4 trillion yen, equivalent to $98.66 billion, on intervention between July 30 and August 26. It was the largest intervention operation in a single month on record. The yen rose from 40-year lows near 164 per dollar to as high as 155.20 by August 3, then weakened toward 160 before recovering to around 155 to 156 in early September.

Part of the operation took place jointly with the United States, marking the countries' first coordinated intervention since 2011. The move surprised markets, which had seen little prospect of such action.

To address concerns about Japan's ability to sustain large-scale intervention, Tokyo and Washington said Japan could use a Federal Reserve backstop created during the COVID-19 era. The facility would allow Japan to obtain dollar liquidity without outright sales of U.S. Treasuries, potentially reducing funding pressure.