Protectionism pays off, Bank of Japan holds $1.219 trillion USD reserves

Japan's foreign exchange (forex) reserves hit a new record of $1.219 trillion at the end of August, up 5.9 percent

Japan’s foreign exchange (forex) reserves hit a new record of $1.219 trillion at the end of August, up 5.9 percent from July, after the massive yen-selling intervention in the currency market, the Finance Ministry said Wednesday.

The previous record was $1.151 trillion logged in July. The reserves rose for the second straight month and remained the world’s second-largest after China, according to the ministry.

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The increase was also attributed to valuation gains in the government’s holdings of the dollar- and euro-dominated assets, as lower interest rates in the US and Europe drove bond prices higher, the ministry said. Other factors included a rise in gold prices.

Japan’s foreign exchange reserves consist of securities and deposits denominated in foreign currencies plus the International Monetary Fund (IMF) reserve positions, IMF special drawing rights and gold. As of August 31, foreign currency reserves stood at $1.135 trillion, IMF reserves at $17.

55 billion and gold at $44.62 billion.

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The reserves are closely monitored for evidence of how Japanese authorities are managing vast foreign currency holdings, as the actions have significant impact on currency exchange rates and global bond markets, particularly in the US government bond market.

Japan spent JPY 4.513 trillion ($58.3 billion) in an independent operation on August 4 to curb a sharp yen rise, its largest-ever currency intervention on a single-day basis. But The Japanese currency hit a postwar high of JPY 75.95 against dollar on August 19.

The Group of Seven (G-7) industrialized nations also conducted on March 18 their first joint intervention since 2000 to aid Japan following the March 11 quake and tsunami as well as accidents at the Fukushima nuclear plant, and Japanese authorities spent JPY 692.5 billion ($8.9 billion) for their part.

A stronger yen hurts the nation’s export-led economy, which has been gradually recovering from a slump following the March disaster, as it makes Japanese products more expensive abroad.

Japan is the only country with foreign reserves of more than USD one trillion besides China, whose holdings hit a record of $3.2 trillion at the end of June, according to the latest comparable data.

China has become the world’s biggest holder of foreign reserves since 2006 by overtaking Japan. Russia came third, followed by Taiwan, Brazil and India. Higher foreign reserves enable Asian countries and regions to more readily defend the value of their currencies.

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