Japan Foreign Reserves Plunge $79.6 Billion After Record Yen Intervention

Japan’s foreign reserves posted their biggest monthly decline on record in August as Tokyo tapped overseas assets to finance an unprecedented intervention aimed at supporting the yen.

The Ministry of Finance said Monday that Japan’s total reserve assets fell 6.18% to $1.208 trillion at the end of August, down from $1.287 trillion in July. The $79.6 billion decline highlights the enormous resources deployed to stabilize the Japanese currency, while reserves remain substantial enough to support further intervention if needed.

Foreign securities recorded the sharpest drop, falling by $87.8 billion. These assets are believed to consist largely of U.S. Treasuries, with market participants estimating that U.S. government debt represents about 70% of Japan’s reserves.

The decline broadly coincided with Tokyo’s record currency intervention. Japan spent ¥15.4 trillion ($98.66 billion) between July 30 and August 26 buying yen and selling dollars, marking its largest intervention within a single month.

The action helped the yen rebound from a 40-year low near 164 per dollar to around 155.2 by August 3. It later weakened toward 160 before recovering to roughly 155-156 in early September.

Part of the operation was coordinated with the United States, representing the first joint yen intervention by Tokyo and Washington since 2011. Japan also appears to have sold some foreign securities to secure dollars for its yen purchases, although the government does not disclose the exact composition or maturities of those holdings.

The potential sale of U.S. Treasuries could attract attention in bond markets, particularly if Japan intervenes again. Washington is already focused on maintaining Treasury market stability as Treasury Secretary Scott Bessent prepares to expand government buybacks of longer-dated debt. Buybacks are set to double to at least $4 billion per operation through November 4.

Meanwhile, expectations for tighter Bank of Japan monetary policy are providing additional support for the yen. Markets are nearly fully pricing in a 25-basis-point BOJ rate hike at its September 17-18 meeting, potentially reducing the need for further direct currency intervention.