Japan's foreign reserves fall by US$54 billion in September

This photo illustration shows the Japanese 10,000 yen notes on display in Tokyo on September 24, 2022. RICHARD A. BROOKS AFP Japan's foreign reserves fell by US $54 billion in September, as global market ructions negatively affected the value of foreign bonds and prompted dollar-selling intervention to prevent a steep decline in the yen, according to official data released on Friday.

The reserves stood at US $1.238 trillion at the end of September, the lowest amount since the end of March 2017 according to the Ministry of Finance data.

The data on Japan's foreign reserves came a week after separate MOF figures showed Tokyo spent up to 2.8 trillion yen US $19.32 billion in the market last month.

Markets have been speculating that Tokyo had sold US Treasuries in a bid to conduct the dollar-selling intervention after the yen's precipitous drop to 24 year lows against the dollar. Friday's MOF data showed a record drop in the value of securities, which includes US Treasuries held in reserves.

Finance Minister Shunichi Suzuki didn't say if US bonds were sold as part of its dollar-selling intervention.

There were drops in market value due to big rises in bond yields, falls in euro-denominated assets on euro's depreciation against the dollar and selling foreign currencies in intervention, as well as the declines in market value, according to Suzuki.

I can't comment on transactions related to intervention. We will pay attention to safety and liquidity when we manage reserves. The US dollar has jumped to record highs against many of its rival currencies over the past few months because of the Federal Reserve's aggressive policy tightening, which has resulted in a shakeout in financial markets. The value of bonds worldwide has been affected by the surging global inflation, which is behind the action of the Fed.

Foreign reserves in other Asian economies fell this week, with South Korea posting its second-biggest monthly decline on record as authorities stepped in to counter the won's slump to a 13 -- 1 2 year low. In September of this year, both China and Indonesia saw their reserves decline.

Japan's foreign reserves are cash deposits parked at overseas central banks and Bank for International Settlements BIS securities, including US Treasuries, gold, IMF reserve position and special drawing rights SDRs. The MOF does not reveal the composition of currencies in the reserves, a bulk of which is believed to be in the US dollar, from the past practice of dollar-buying, yen-selling intervention to prevent a strong yen from damaging exporters.

In Japan, which has long counted on the exports of cars and electronics as a key driver of economic growth, yen-buying, dollar-selling intervention has been rare.

Policymakers are concerned about the impact of sharp and one-sided yen weakening on a nascent economic recovery from the COVID 19 flu, as it drives up living costs and makes it harder for business planning.

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The previous record amount for single day intervention was 2.6 trillion yen spent in April 1998 in the Asian financial crisis of 1997 98.

Investors are closely watching the daily intervention data for the July-September period due to be released in November to see whether authorities conducted'stealth intervention or intervening without official announcement.

Japan had not conducted dollar-selling, yen-buying intervention since 1998 until the authorities forayed into the market on September 22 when the Japanese currency dropped sharply to a 24 year low near 146 yen to the dollar.