Japan sold a record ¥15.4 trillion ($98.66 billion) in foreign securities, including US Treasuries, to fund its unprecedented currency intervention through late August. According to the latest government data, Japan's foreign reserves dropped $79.6 billion, or 6.18%, landing at $1.208 trillion at the end of August. This represents the largest single-month decline on record for the country, with foreign securities within the portfolio slipping to $931.7 billion. The Ministry of Finance's sale of foreign assets to fund yen-buying interventions demonstrates the scale of Japan's commitment to currency stabilization, as the country remains the world's largest holder of US government debt with estimated holdings between $1.1 trillion and $1.24 trillion. The decline was led by a drop in foreign securities, held mostly in US Treasuries bought during dollar-buying intervention conducted around two decades ago, which account for about 70% of Japan's reserves.
The yen had been sliding toward 40-year lows against the dollar, forcing Japanese authorities into action. In late July and early August, Tokyo and Washington conducted their first coordinated yen-buying intervention since 2011, with part of the operation conducted jointly with the United States. To navigate the tension between supporting the yen and avoiding disruption to global bond markets, Japanese authorities turned to the Federal Reserve's FIMA repo facility. This mechanism allows foreign central banks to pledge Treasury collateral in exchange for dollars without actually selling bonds on the open market, letting Japan access the liquidity it needed while avoiding the worst-case scenario for US bond markets. To soothe market concern about the limits of Japan's capacity for large-scale intervention, Tokyo and Washington have said Japan could utilise a COVID-19 era Federal Reserve backstop for major central banks.
The sale of US Treasuries by Japan represents one of the most expensive currency defenses in modern history, raising questions about what comes next for global bond markets. The intervention helped lift the yen from 40-year lows near 164 per dollar to as high as 155.20 by August 3, before the Japanese currency subsequently weakened toward 160 before recovering to around 155 to 156 in early September. Analysts estimate that roughly 70% of Japan's reserves are invested in US government debt, meaning any aggressive selling by Tokyo has the potential to ripple through the world's most important bond market. The transaction directly supports Japan's currency intervention strategy and demonstrates the country's willingness to utilize its substantial foreign exchange reserves to defend the yen's value, with valuation losses not seen as a major factor behind the decline as the price of the 10-year US Treasury remained relatively stable.
