Japan’s foreign reserves fall again as Tokyo carries on dumping dollars and buying the yen

japan yen
Japan has been buying up yen and selling dollars in a bid to support its struggling currency.

  • Japan’s foreign currency holdings fell for a third straight month in October, official data show.
  • Tokyo is battling to prop up the yen, which has tumbled 27% against the dollar in 2022.
  • Japan has been offloading its dollars and buying the yen in a bid to stabilize its struggling currency.

Japan’s foreign reserves fell again in October as Tokyo battled to prop up the yen by dumping its holdings of the US dollar.

The value of the country’s reserve assets dropped by $43.5 billion to $1.19 trillion at the end of October, according to Japanese Ministry of Finance data published Tuesday.

It’s the second month of declines in foreign reserves in a row for Japan, after they sank by a record $54 billion in September. That’s when Japanese authorities intervened in currency markets for the first time since 1998, selling some dollar holdings in a bid to prop up the struggling yen.

The yen has plunged 27% this year as aggressive Federal Reserve interest rate hikes help drive a surge in the dollar against other currencies. Rising interest rates tend to support a currency because foreign investors attracted by the higher yields need to buy it.

In the US, the Fed has hiked rates by 75 basis points four times in a row to combat soaring inflation. Meanwhile, the Bank of Japan has kept its interest rates in negative territory, currently at –0.1%.

But Tokyo has still been drawn into an ongoing “reverse currency war“, which has had countries around the world  battling to prop up their currencies against the dollar. They are attempting to keep a lid on import costs — which rise as their currency weakens against its US counterpart — and in turn, on inflation.

Japan spent 2.84 trillion yen ($19 billion) on September 22 in an intervention to prop up the struggling currency, according to further Ministry of Finance data released Tuesday.

That failed to stop the yen from continuing to slide. It has fallen another 2.7% since that date to 146.22 yen per dollar, at last check Tuesday.

The official figures also confirmed the September sale remains Tokyo’s first and only foray into currency markets since 1998, despite traders’ speculation that the ministry has subsequently stealthily intervened.

Read more: Decades-high inflation has triggered a ‘reverse currency war’ as a soaring dollar leaves central banks scrambling to catch up

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