Japan's foreign exchange reserves recorded their biggest ever drop in August, according to official data released today. The reserves stood at $1.21 trillion (€1.04 trillion), a record decline of $79.6 billion (€68.561 billion), or 6.18%, compared to the previous month. This is the largest drop since comparable records began in April 2000.
The decline, the fourth consecutive monthly drop, was due to the currency intervention through the purchase of yen and sale of dollars carried out in late July by the Japanese government and the Bank of Japan (BoJ), in coordination with Washington. Foreign securities, including U.S. Treasury bonds, decreased by $87.773 billion, to $839.559 billion, while deposits fell by $6.868 billion, to $155.417 billion.
The Japanese Ministry of Finance confirmed it used ¥15.4 trillion (approximately €85 billion) in an unexpected joint intervention with Washington in the foreign exchange market. This measure contributed to the appreciation of the Japanese currency after it had hit 40-year lows near 164 yen per dollar. Despite the intervention and amid strong volatility, the yen weakened again to near 160 per dollar, before recovering in early September to around 155 yen per dollar.
The recovery occurred after the U.S. Treasury Secretary, Scott Bessent, urged the Bank of Japan to combat the currency's weakness. Several analysts consider it likely that the Japanese government sold U.S. Treasury bonds to obtain dollars for financing the yen-buying operations.
