Japan authorities may have dipped into the foreign securities held within their reserves, including US Treasuries, over the past month to bankroll record-breaking currency intervention efforts. Data released by the Ministry of Finance on Monday shows that the nation's holdings of foreign securities fell by $87.8 billion from the previous month at the end of August, a decline that closely aligns with the scale of intervention deployed to shore up the yen.
Officials had previously confirmed that a total of 15.4 trillion yen, or roughly $98.6 billion, was spent on market action during the month ending August 26, marking the largest monthly intervention on record, with a portion of those moves conducted in coordination with the US. While the official figures do not disclose the exact composition or maturity breakdown of these securities, market participants broadly estimate that approximately 70% of Japan's FX reserves are invested in US Treasuries.
Data indicates that the 10-year Treasury price saw only a slight decline by end-August compared with end-July, suggesting that valuation shifts contributed very minimally to the overall reduction in foreign securities. Should this intervention round once again involve selling US debt to raise funds, it signals that Tokyo remains willing to follow this path even as Washington grows more attentive to Treasury market stability, especially with midterm elections on the horizon.
US Treasury Secretary Scott Bessent recently announced that the government will double its long-dated debt buyback program over the two months leading up to November 4, a move seemingly intended to curb upward pressure on longer-end yields. According to Monday's release, Japan's total foreign exchange reserves fell by $94.6 billion in August to $995 billion. Even after this drawdown, the remaining buffer indicates that ample resources are still available should authorities need to step in again.
Foreign currency deposits, another potential funding source for intervention, declined by $6.9 billion during the month. Beyond these financing avenues, Finance Minister Satsuki Katayama hinted after the joint US-Japan action that future intervention efforts could tap the Federal Reserve's Foreign and International Monetary Authorities Repo Facility, known as the FIMA Repo Facility. That tool would allow Japan to access up to $60 billion per day without selling Treasuries, thereby avoiding any impact on US bond yields while expanding the scope for potential market operations.
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