Japan's Foreign Reserves See Record Drop in August: "Massive U.S. Treasury Sell-Off Cited"

Foreign Currency Securities Holdings Down $8.78 Billion
U.S. Treasuries Estimated to Account for 70% of Total Holdings
Significant Room for Additional Yen Defense by the Government

Japan's foreign exchange reserves saw their largest-ever monthly decline in August. International media outlets have attributed this to the Japanese government's massive sale of U.S. Treasuries last month in order to defend the yen at a record scale.

On August 3rd, Japanese Finance Minister Satsuki Katayama was seen entering the Tokyo Ministry of Finance. Photo by Reuters Yonhap News

According to data on foreign exchange reserves released by Japan’s Ministry of Finance on the morning of September 7, reserves stood at USD 1.208 trillion at the end of August, a drop of USD 79.6 billion from USD 1.287 trillion at the end of July. This represents the largest monthly decrease on record. Of this, holdings in foreign securities decreased by roughly USD 87.8 billion to USD 839.6 billion from USD 927.3 billion in the previous month.

Bloomberg noted that this decrease is similar to the amount the Japanese government recently used to defend the yen. Previously, the Japanese government spent a record-high JPY 15.4 trillion (USD 98.6 billion) over the month through August 26 on foreign exchange market interventions. Some of these interventions were reportedly carried out in coordination with the United States.

The Ministry of Finance does not publicly specify which foreign securities were sold. However, market estimates suggest that about 70% of these securities are U.S. Treasuries. Given that prices of 10-year U.S. Treasuries hardly fluctuated in August, the sharp drop in holdings suggests that actual sales, rather than a simple decline in valuation, likely drove the decrease.

Status of Foreign Exchange Reserves as of the End of August 2026, Ministry of Finance Japan

If Japan sold U.S. Treasuries to fund its yen defense, this could pose a challenge for the Donald Trump administration, the report noted. Recently, U.S. Treasury Secretary Scott Bessent decided to double the volume of long-term Treasury buybacks over the two months leading up to the U.S. midterm elections on November 4. This move was interpreted as an effort to curb rising long-term Treasury yields.

Japan still maintains considerable capacity for further intervention. While its foreign exchange reserves decreased by USD 94.6 billion in a single month, USD 995 billion remained as of the end of August. Going forward, Japan is reportedly considering utilizing the Federal Reserve’s Foreign and International Monetary Authorities (FIMA) repo facility, rather than directly selling U.S. Treasuries. Through this system, Japan can raise up to USD 60 billion per day using U.S. Treasuries as collateral, allowing it to defend the yen while minimizing shocks to the U.S. Treasury market.

This content was produced with the assistance of AI translation services.