Japan's Record Reserve Drop Raises Concerns Over Dollar Funding

Japan's Ministry of Finance revealed that the country's foreign reserves plummeted by a record $79.6 billion in August to $1.208 trillion.

The drastic drop was largely due to Tokyo's intervention in the currency market, where it used 15.4 trillion yen for dollar-selling and yen-buying measures.

The majority of Japan's foreign securities, around 70%, are US Treasuries, which were sold to raise dollars for the intervention.

This has raised concerns among bond traders that large-scale interventions could lead to extra supply in the Treasury market, potentially nudging yields and testing liquidity during stressed periods.