Japan's foreign reserves rise to their highest level in a decade

Japan's foreign reserves rise to their highest level in a decade

Foreign reserves of TOKYO Japan rose to their highest level in a decade, the Ministry of Finance said on Wednesday, as the dollar's retreat boosted the value of non-dollar foreign assets and authorities refrained from currency market intervention.

Japan's foreign reserves increased by 2.65 per cent from the previous month to $1.226 trillion at the end of November, the first rise in four months and their highest since December 2016, ministry officials said.

The recent reversal of dollar strength has relieved pressure on the Japanese currency, as investors are looking at Japan's foreign reserves and intervention records for clues on how much money Japan might be able to spend to stem yen weakness.

The dollar has fallen by about 10 per cent against the yen since hitting a 32 year high of almost 152 yen in October. The dollar pulled back as speculation mounted that the U.S. Federal Reserve's aggressive interest rate hikes may be peaking out and inflation is nearing a ceiling.

Japan's foreign reserves were whittled down in September and October due to the authorities' dollar-selling and yen-buying intervention when they tried to rein in the yen's decline against the dollar. The value of the reserves was trimmed by a rise in foreign bond yields.

With those factors no longer in play, other factors that boost reserves -- interest earned on foreign bond holdings, declines in overseas yields, appreciation of the euro against the dollar, and higher gold prices -- drove up Japan's foreign reserves in November, the ministry officials said.

Foreign bonds, most of which are widely believed to be U.S. Treasuries bought during bouts of dollar-buying intervention when the yen is strong, account for about four-fifths of Japan's reserves.

Deposits, mostly parked at overseas central banks and the Bank for International Settlements, make up about one-tenth of the reserves, while gold accounts for about 4 per cent.

Japan spent 6.35 trillion yen $46.28 billion on currency market intervention in October, adding to 2.8 trillion yen spent on intervention in September. The authorities did not intervene in November.