Japan's Foreign Exchange Reserves Fall by 7.4 Trillion Yen in May Due to Intervention

Japan's foreign exchange reserves decreased by approximately 7.4 trillion yen in May compared to the end of April. This is primarily attributed to the Japanese government and the Bank of Japan's intervention in the foreign exchange market.

According to the Ministry of Finance, foreign exchange reserves stood at 1.2315 trillion dollars (approximately 193 trillion yen) at the end of May, a decrease of 47.4 billion dollars (approximately 7.4 trillion yen) from the end of April. This is widely believed to be due to the government's announced foreign exchange intervention of 9.7885 trillion yen between April and May. The decrease is the second-largest on record, following the large-scale dollar sales and yen purchases in September 2022.

Specifically, the decline in securities holdings was particularly significant. At the end of May, securities holdings amounted to 927.5 billion dollars (approximately 145 trillion yen), a decrease of 50.4 billion dollars (approximately 7.9 trillion yen) from the previous month. This represents the largest decrease ever recorded.

Meanwhile, concerns have been raised regarding the Japanese government's foreign exchange reserve policy. The Japan Research Institute recently issued a report indicating that the government's foreign exchange reserve policy could pose risks to Japan's fiscal management in the future. The report explains that as Japan's foreign exchange reserves have grown to become the largest in the world, the country is becoming increasingly exposed to market risks such as exchange rate fluctuations and interest rate changes.

There are calls for the Japanese government to review its foreign exchange reserve policy and adjust the scale of its foreign exchange reserves through measures such as selling foreign currency assets.