Japan likely sold a portion of its holdings of foreign securities, including U.S. Treasurys, to finance its record currency intervention over the past month. Tokyo’s holdings of foreign securities fell by $87.8 billion at the end of August from a month earlier, according to Finance Ministry reserve data released Monday.
That decline was close to the scale of Japan’s recent intervention to support the yen. The ministry earlier confirmed that authorities spent the equivalent of a monthly record ¥15.4 trillion ($98.6 billion) in the month through Aug. 26, with part of the operation conducted jointly with the U.S. The data does not provide a detailed breakdown of securities holdings or maturities, though market participants estimate that roughly 70% of Japan’s foreign reserves are invested in U.S.
The price of 10-year Treasurys at the end of August was only slightly down from the end of July, suggesting that valuation changes accounted for only a very small portion of the fall in foreign securities. Another intervention financed through sales of U.S. Treasurys would show that Tokyo is still willing to go down that route even as U.S. officials have become increasingly focused on Treasury-market stability, particularly ahead of the midterm elections.
Treasury Secretary Scott Bessent recently announced that the government would double the size of its buybacks of longer-dated debt for two months through Nov. 4. That move looked to be aimed at keeping a lid on longer-term yields. While Monday’s report showed Japan’s foreign currency reserves fell $94.6 billion to $995 billion at the end of August, the remaining amount still shows the substantial resources available to authorities should they need to intervene again.
Foreign currency deposits, another potential source of intervention funds, fell $6.9 billion. In addition to these funding options, Japan may also tap the Foreign and International Monetary Authorities Repo Facility in future interventions, Finance Minister Satsuki Katayama suggested after U.S.-Japan joint intervention. The facility enables Japan to access up to $60 billion per day without selling Treasurys, limiting any impact on U.S. yields and expanding the potential scope for intervention.
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