Japan Likely Sold US Treasuries to Fund Record Yen Intervention

Japan's recent currency intervention to support the yen has likely involved selling foreign securities, including US Treasuries, to finance the effort. Tokyo spent a record ¥15.4 trillion ($98.6 billion) in August through Aug. 26, with part of the operation conducted jointly with the US.

The decline in foreign securities holdings was $87.8 billion at the end of August from a month earlier, according to Finance Ministry reserve data released Monday. This is close to the scale of Japan's recent intervention, and market participants estimate that roughly 70% of Japan's foreign reserves are invested in US Treasuries.

The price of 10-year Treasuries at the end of August was only slightly down from the end of July, suggesting that valuation changes accounted for only a very small portion of the fall in foreign securities. Another intervention financed through sales of US Treasuries would show that Tokyo is still willing to go down that route.

Japan's foreign currency reserves fell $94.6 billion to $995 billion at the end of August, but the remaining amount still shows substantial resources available to authorities should they need to intervene again. Finance Minister Satsuki Katayama suggested that Japan may also tap the Foreign and International Monetary Authorities Repo Facility in future interventions.