The Ministry of Finance said on Tuesday that Japan's foreign reserves continued their decrease in October, after the previous month's record dip. This decline is a reflection of the highest ever amount of yen-buying and dollar-selling intervention that took place.
The data was released alongside separate figures that confirmed Japan did not engage in covert intervention during the month of September. Instead, Japan only entered the market to buy yen for U.S. dollars on September 22, as was announced. This was the country's first foray into the market to prop up the Japanese currency since 1998.
Market participants are examining Japan's vast pool of foreign assets and intervention records for clues on how much more Japan might be willing to spend in its forays into the currency market. Despite the fact that authorities are maintaining a tight-lipped stance on intervention, market participants are analysing Japan's vast pool of foreign assets.
Tohru Sasaki, head of Japan Markets Research at JPMorgan Chase Bank, said, "I wouldn't be surprised if authorities conducted intervention one more time if dollar gains accelerate to hit new high beyond 152 yen." "I wouldn't be surprised if authorities conduct intervention one more time if dollar gains accelerate to hit new high beyond 152 yen."
"However, I do not believe that Japan will be able to keep up its large-scale intervention of selling United States Treasuries in order to purchase the yen permanently. Given the country's connections with its closest friend, the United States, there need to be certain restrictions."
While the United States is raising interest rates to combat inflation, Japanese officials have stated that they maintain close contact with their counterparts in the United States. They dismissed rumours that the United States might be opposed to an intervention that involves selling dollars in order to weaken a currency.
According to the information provided by the ministry, Japan's foreign reserves decreased for the third consecutive month to a total of $1.19 trillion as of the end of October. Despite this decline, Japan's reserves are still the second biggest in the world, after China. The decrease of $43.5 billion was the second most significant month-on-month drop in the history of the series.
According to authorities, additional variables that might increase reserves, such as better values of other foreign assets and income benefits from ownership of foreign bonds, were more than negated by the currency intervention and increasing rates on foreign bonds.
By asset type, foreign bonds account for four-fifths of the reserves. It is commonly assumed that the majority of these bonds are United States Treasuries, which were purchased during periods of dollar-buying intervention in the past when the yen was high.
The value of foreign bonds in the reserves experienced the second-biggest loss to $941 billion last month after seeing the highest decline in September. The officials have refused to disclose, but market experts believe that the reductions are a reflection of an intervention involving the selling of U.S. Treasuries in order to acquire yen.
Deposits increased for a second consecutive month, reaching a total of $137 billion in October. The majority of these deposits are held at central banks located in other countries as well as the Bank for International Settlements. Deposits account for approximately one tenth of the reserves and can be easily converted into cash.
Separate data on intervention, which includes quarterly and daily totals, indicated that the government did not engage in stealth intervention throughout the month of September. During that month, they spent 2.8 trillion yen to support the currency.
The value of the yen reached a 32-year low JPY=EBS at 152 yen to the dollar in the previous month, which led to Japan spending a record 6.35 trillion yen on intervention.
The persistent commitment of the Bank of Japan to maintaining very low interest rates, in stark contrast to the aggressive rate rises implemented by the Federal Reserve in the United States, has kept the yen under sustained selling pressure. ($1 = 146.8700 yen)
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