Japan forex reserves rise to record 932.16 billion dollars in August

Sep 7, 2007 - Japan's foreign exchange reserves surged to a new record of 932.157 billion US dollars at the end of August, up from the previous all-time high of 923.718 billion dollars in July, buoyed by rises in prices of US Treasuries, the Ministry of Finance said Friday.

The reserves at the end of August included $785.602 billion in securities and $125.265 billion in deposits. The rest includes IMF reserve positions, special drawing rights and gold.

Treasury prices were supported by strong interest from risk-averse investors fleeing the turbulence on global financial markets, stemming from the US subprime loan problem.

As a result, the yield on the 10-year note stood at 4.533 percent at the end of August, down from 4.743 percent at the end of July.

Bond prices move inversely to yields.

An official at the finance ministry said the increase in Japan's reserves was also because of higher coupon income from US bonds.

At the same time, the the weakening of the euro against the dollar deflated the dollar value of euro-denominated assets, negatively affecting the value of Japan's foreign exchange reserves, an official said.

The euro fell to 1.3630 dollars at the end of August from 1.3683 dollars in the previous month, according to data from the ministry.

Japan's forex reserves remain the second largest in the world, next to China, whose holdings reached 1.33 trillion dollars at the end of June, according to the latest available data from China's central bank.

Foreign exchange reserves consist of securities and deposits denominated in foreign currencies, plus International Monetary Fund reserves, IMF special drawing rights (SDRs) and gold.

At the end of August, Japan's foreign currency reserves totaled 910.867 billion dollars, IMF reserves stood at 1.490 billion dollars, SDRs at 2.917 billion dollars, gold at 16.533 billion dollars, and other foreign currency assets at 350 million dollars.

Japan's reserves are closely watched for evidence of how the country is managing its foreign currency holdings. Its actions are seen having a significant impact on currency exchange rates and global bond markets, particularly the US government bond market.

The biggest changes in Japan's forex reserves usually occur when authorities intervene in the currency market to prevent the yen from appreciating too much. Monetary authorities have not intervened since mid-March 2004.

The government does not disclose the currency breakdown of the external reserves. But historical data on Japan's currency intervention, which has mostly taken the form of dollar buying, suggests most of Tokyo's hefty reserves are in dollars.

Unlike some other countries which have been diversifying their forex reserves recently, Japan has been reluctant to significantly change the make-up of its reserves, fearing such action could disturb currency markets.

Top government spokesman Kaoru Yosano said on Friday that Japan needs to carefully manage its vast foreign reserves while paying heed to the stability of currency markets.

(1 US dollar = 115.37 yen)