Japan's foreign reserves drop by a record $80 billion in August following yen intervention

Japan's foreign reserves have fallen at their fastest pace since ministry records started in 2000, slumping 6.18% in August. Finance ministry data showed that foreign reserves stood at $1.207 trillion, down from July's figure of $1.287 trillion. This is the fourth straight month of decline, and surpassed the previous record in May, when reserves had dropped 5.58%. While the finance ministry did not give the reason for the decline, Japanese media outlet Kyodo News cited an unnamed finance ministry official, saying the drop was due to interventions aimed at propping up the yen and a decline in the value of government bonds, following a jump in yields. Global bond yields have been climbing to multiyear highs, with yields in Germany, the UK, and U.S. Treasuries hitting sharp milestones. Masahiko Loo, senior fixed income strategist at State Street Investment Management, told CNBC that the "decline is primarily the result of Japan's recent dollar-selling, yen-buying FX interventions." Tokyo has conducted multiple rounds of interventions to prop up the yen over the past few months, buying about 11.73 trillion yen ($75.26 billion) in April and May, and then conducting a larger intervention of 15.4 trillion yen, which was supplemented by the U.S. selling euros to support the yen, at the end of July. According to finance ministry data, the combined 27.1 trillion yen spent so far is the largest yearly amount ever splashed out on intervention, surpassing the previous record of 20.4 trillion yen in 2003. The move with Washington was also the first coordinated intervention by the two countries to support the yen since since 1998. The yen, which had hit a 40-year low of 163.98 on July 23, currently trades at 155.98 against the dollar. When asked if the drop in reserves should worry investors, State Street's Loo said, "The decline reflects policy action rather than financial stress."