Record drop in foreign exchange reserves

Japan's foreign exchange reserves posted their largest monthly drop on record in August, falling by $79.6 billion to $1.208 trillion, according to official data released by the Ministry of Finance on Monday. The contraction represents a 6.18% decline from the $1.287 trillion recorded at the end of July. Detailed figures published by the ministry show the reserves dropped by $79,575 million to finish August at $1,207,524 million. This reduction marks the fourth consecutive month of foreign reserve declines for Japan. The overall drawdown was driven primarily by reductions in foreign securities, which constitute approximately 70% of the nation's total reserve portfolio. These securities consist predominantly of United States Treasuries acquired during dollar-buying currency operations carried out roughly two decades ago.

End of July 20261,287

End of August 20261,208

End of July 2026

1287 $B

End of August 2026

1208 $B

Data from the article text

Yen-buying intervention operations in August

The sharp reduction in reserves follows aggressive action by the Japanese government and the Bank of Japan to support the yen in foreign exchange markets. Between July 30 and August 26, Japan expended 15.4 trillion yen ($98.66 billion) on yen-buying and dollar-selling operations. Ministry of Finance data indicates that this total expenditure was the largest intervention operation on record conducted in a single month. A portion of the yen-buying operation was carried out jointly with the United States. This development marked the first coordinated currency market intervention between Tokyo and Washington since 2011. The joint maneuver surprised currency market participants, who had previously viewed the prospect of coordinated bilateral action as highly unlikely.

Yen recovery and Treasury liquidation

The currency purchases altered the exchange rate trajectory after the yen had sunk to 40-year lows near 164 per dollar in late July. Following the initial market actions, the currency strengthened to 155.20 per dollar by August 3. Although the yen subsequently weakened back toward the 160 level during later August trading, it recovered to trade between 155 and 156 per dollar in early September, near a level of 156.0900 yen per dollar. To fund the volume of dollar sales necessary to execute the intervention, Japanese authorities liquidated foreign assets. Data from the Ministry of Finance showed that Tokyo's holdings of foreign securities fell by $87.8 billion by the end of August compared with the prior month.

Federal Reserve liquidity facility

Following the record monthly drawdown, market participants raised concerns over the structural limits of Japan's capacity to maintain large-scale currency interventions. In response to these concerns, Tokyo and Washington confirmed that Japan could utilize a Federal Reserve backstop originally established for partner central banks. The facility was first introduced in 2020 during the coronavirus pandemic to steady financial markets. Under this arrangement, Japan is permitted to secure dollar liquidity directly from the Federal Reserve without conducting outright sales of United States Treasuries. Utilizing this facility provides a mechanism to ease funding pressure on Tokyo during future market operations while avoiding disruption to the United States sovereign debt market.