TokYO Japan's foreign reserves fell by a record $54 billion in September, according to official data released on Friday, as global market ructions depressed the value of foreign bonds and prompted dollar-selling intervention to arrest a steep decline in the yen.
The reserves stood at $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, the world's second largest in size after China, came a week after separate MOF figures showed Tokyo spent up to a record 2.8 trillion yen in the market last month.
Markets were speculating that Tokyo had sold U.S. Treasuries in conducting the dollar-selling intervention after the yen's precipitous drop to 24 year lows against the dollar. Friday's MOF data backed that assumption, as it showed a record drop in the value of securities, which includes U.S. Treasuries held in reserves.
Finance Minister Shunichi Suzuki wouldn't say if U.S. bonds were sold as part of its dollar-selling intervention.
The declines included drops in market value of securities 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 a decline in market value, according to Suzuki.
I can't comment on transactions related to intervention. We will pay attention to safety and liquidity when managing reserves. The U.S. dollar has been catapulting to record highs against many of its rivals 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 negatively affected by the surging global inflation, which is behind the action of the Fed.
Japan's foreign reserves consist of cash deposits parked at overseas central banks and Bank for International Settlements BIS securities, including U.S. Treasuries, gold, IMF reserve position and special drawing rights SDRs. The MOF does not reveal the composition of the reserves, a bulk of which is believed to be in the U.S. 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, it's rare for yen-buying, dollar-selling intervention.
Policymakers are worried about the impact of sharp and one-sided yen on a nascent economic recovery from the COVID-19 pandemic, as it drives up living costs and makes it harder for business planning.
The previous record amount for single day intervention was 2.6 trillion yen spent in April 1998 during the Asian financial crisis of 1997 98.
Investors are watching daily intervention data for the July-September period, due out in November to see whether authorities have intervened without an official announcement.
Since 1998, Japan had not conducted dollar-selling, yen-buying intervention until the authorities decided to enter the market on September 22 when the Japanese currency dropped sharply to a 24 year low near 146 yen to the dollar.