After currency intervention, Japan’s foreign reserves at all-time high in September

Wednesday, October 6, 2010

Japan forex reserves at record after intervention

TOKYO — Japan’s foreign exchange reserves hit an all-time high in September after the central bank intervened in currency markets for the first time in more than six years.

Japan’s international reserves rose for the fourth straight month to $1.11 trillion as of Sept. 30, up $39.45 billion from a month earlier, the Ministry of Finance said Thursday.

The previous record of $1.07 trillion was recorded in November 2009.

Japan bought dollars and sold yen on Sept. 15 in an effort to weaken the Japanese currency, whose recent strength poses a major risk to the export-driven economy. A strong yen reduces the value of companies’ overseas profits when repatriated and hurts the price competitiveness of their products in foreign markets.

The foreign ministry revealed last week that it spent 2.12 trillion on currency intervention in the month through Sept. 28.

The move worked initially, weakening the yen as hoped. But the impact was short-lived. The yen struck yet another 15-year high — 82.75 yen to the dollar — Wednesday in New York.

The dollar is sliding broadly on expectations that the Federal Reserve is preparing to ease monetary policy at its next meeting. That would drive down interest rates and dampen the dollar’s appeal to investors.

Concerned about the yen and persistent deflation, Japan’s central bank returned to a virtually zero rate policy this week and announced plans to set up a 5 trillion yen asset-buying fund that aims to lower long-term interest rates.

Japan’s foreign reserves are the second biggest in the world after China’s. Its assets include U.S. Treasurys, deposits at foreign central banks and gold.

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