Japan's foreign reserves fall to $1.238 trillion

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Japan's foreign reserves fall to $1.238 trillion

Japan's foreign reserves fell by a record number to $1.238 trillion at the end of September due to government intervention during the month to combat a decline in the yen, Ministry of Finance data showed on Friday.

The amount was lower than the $1.409 trillion seen a year ago and is the second straight month of year-on-year decline in Japan's foreign reserves, which is the world's second largest in size after China.

The decline in reserves came after separate MOF data showed that Japan spent up to a record 2.8 trillion yen intervention in the market last month.

Japan's foreign reserves consist of cash deposits parked at overseas central banks and the Bank for International Settlements (BIS) securities including U.S. Treasuries, gold, IMF reserve position and special drawing rights SDRs. The drops in deposits and securities meant these two types of assets were likely to be used to finance the latest intervention.

The MOF does not reveal the makeup 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.

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

Policymakers are worried more about the impact of a one-sided yen weakening on the 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 a single day intervention was 2.6 trillion yen spent in April 1998 during the Asian financial crisis of 1997 98.

In the month of July-September, investors are watching daily intervention data for the July-September period to see if authorities have intervened without an official announcement.

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