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Published: 14:51, October 01, 2022 | Updated: 16:12, October 01, 2022
Japan spent record of nearly $20b to support the yen
By Reuters
Published:14:51, October 01, 2022 Updated:16:12, October 01, 2022 By Reuters

Banknotes of Japanese yen are seen in this illustration picture taken Sept 23, 2022. (FLORENCE LO / ILLUSTRATION / REUTERS)

TOKYO – Japan spent up to a record 2.8 trillion yen ($19.7 billion) intervening in the foreign exchange market last week to prop up the yen, Ministry of Finance data showed on Friday, draining nearly 15% of funds it has readily available for intervention.

Japan held roughly $1.3 trillion in reserves, the second biggest after China, of which $135.5 billion was held as deposits parked with foreign central banks and the Bank for International Settlements, according to foreign reserves data released on Sept 7

The figure was less than the 3.6 trillion yen estimated by Tokyo money market brokers for Japan's first dollar-selling, yen-buying intervention in 24 years to stem the currency's sharp weakening.

The ministry's figure, indicating total spending on currency intervention from Aug 30 to Sept 28, is widely believed to have been used entirely for the Sept 22 intervention. It would surpass the previous record for dollar-selling, yen-buying intervention in 1998 of 2.62 trillion yen. Confirmation on the dates of the spending will be released in November.

"This was a big burst of intervention, if it had happened on a single day, underscoring Japanese authorities' determination to defend the yen," said Daisaku Ueno, chief forex strategist at Mitsubishi UFJ Morgan Stanley Securities.

"But the impact of further intervention will diminish as long as Japan continues to intervene solo," he said.

READ MORE: Japan govt reiterates concern as yen drops to lowest since 1998

The intervention, conducted after the yen slumped to a 24-year low of nearly 146 to the dollar, triggered a sharp bounce of more than 5 yen per dollar from that low, although the currency has since drifted down again to around 144.25.

"Recent sharp, one-sided yen declines heighten uncertainty by making it difficult for companies to set business plans. It's therefore undesirable and bad for the economy," Bank of Japan Governor Haruhiko Kuroda was quoted as saying at a meeting with cabinet ministers on Friday.

Japan held roughly $1.3 trillion in reserves, the second biggest after China, of which $135.5 billion was held as deposits parked with foreign central banks and the Bank for International Settlements, according to foreign reserves data released on Sept 7. Those deposits can easily be tapped to finance further dollar-selling, yen-buying intervention.

"Even if it were to intervene again, Japan likely won't have to sell US Treasury bills and instead tap this deposit for the time being," said Izuru Kato, chief economist at Totan Research, a think-tank arm of a major money market brokerage firm in Tokyo.

If the deposits dry up, Japan would need to dip into its securities holdings sized around $1.04 trillion.

Of the main types of foreign assets Japan holds, deposits and securities are the most liquid and can be converted into cash immediately.

ALSO READ: Japan posts record trade deficit in August as energy imports soar

Other holdings include gold, reserves at the International Monetary Fund and IMF special drawing rights, although procuring dollar funds from these assets would take time, analysts say.


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