Japan foreign reserves rise to highest in six years

By Tetsushi Kajimoto

TOKYO (Reuters) -Japan’s foreign reserves rose in November to their highest in six years, the Ministry of Finance said on Wednesday, as the dollar’s retreat boosted the value of non-dollar foreign assets and authorities refrained from currency market intervention.

Japan’s foreign reserves grew 2.65% from the previous month to $1.226 trillion at the end of November, the first rise in four months and their highest since December 2016, ministry officials said.

Investors are scrutinising Japan’s foreign reserves and intervention records for clues on how much Japan might be able to spend to stem yen weakness, although the recent reversal of dollar strength has eased pressure on the Japanese currency.

The dollar has fallen about 10% against the yen since hitting a 32-year high of almost 152 yen in October. The dollar pulled back as speculation mounted that the U.S. Federal Reserve’s aggressive interest rate hikes may be peaking out and inflation may be nearing a ceiling.

Japan’s foreign reserves were whittled down in September and October by the authorities’ dollar-selling and yen-buying intervention, when they sought to rein in the yen’s sharp decline against the dollar. A rise in foreign bond yields also trimmed the value of the reserves.

With those factors no longer in play, other factors that boost reserves – interest earned on foreign bond holdings, declines in overseas yields, appreciation of the euro against the dollar, and higher gold prices – drove up Japan’s foreign reserves in November, the ministry officials said.

Foreign bonds, most of which are widely believed to be U.S. Treasuries bought during bouts of dollar-buying intervention when the yen was strong, account for about four-fifths of Japan’s reserves.

Deposits, mostly parked at overseas central banks and the Bank for International Settlements, make up about one-tenth of the reserves, while gold accounts for about 4%.

Japan spent a record 6.35 trillion yen ($46.28 billion) on currency market intervention in October, adding to 2.8 trillion yen spent on intervention in September. The authorities did not intervene, however, in November.

($1 = 137.2000 yen)

(Reporting by Tetsushi Kajimoto; Editing by Edmund Klamann)