Yen Intervention Sparks Biggest-Ever Drop in Japan's Foreign Reserves

Japan's foreign reserves saw their biggest decline in August, dropping to $1.208 trillion, down from $1.287 trillion in July. This marks a record decrease of $79.6 billion or 6.18%.

The sharp drop was largely due to a decrease in foreign securities, mostly US Treasuries purchased during dollar-buying intervention over two decades ago. These securities account for about 70% of Japan's reserves.

Japan spent a record $98.66 billion on intervention between July 30 and August 26, the largest single-month operation on record. This move helped lift the yen from near 40-year lows to around 155 per dollar by August 3.

The intervention was conducted jointly with the US, the first coordinated effort since 2011. Tokyo and Washington have suggested that Japan could utilize a COVID-19 era Federal Reserve backstop for major central banks, which allows for raising dollar liquidity without outright sales of U.S. Treasuries.