Paying the price for supporting the yen? Japan's foreign reserves fell by $87.8 billions in August, possibly due to selling US Treasuries for funding.

According to Jinse Finance, Japanese authorities may have used part of their foreign exchange reserves—specifically, foreign securities (including U.S. Treasuries)—in the past month to finance their record-scale currency intervention. Data on Japan’s foreign exchange reserves released by the Ministry of Finance on Monday show that as of the end of August, Japan’s holdings of foreign securities decreased by $87.8 billion compared to the previous month. This decline is roughly equivalent to the scale of recent interventions undertaken to support the yen.

The Ministry of Finance had previously confirmed that, in the month ending August 26, authorities spent a total of 15.4 trillion yen (approximately $98.6 billion) in currency market interventions, marking a new record in monthly intervention volume. Some of these operations were joint actions with the United States.

Although the official data do not disclose detailed breakdowns or maturities of the securities held, market participants generally estimate that about 70% of Japan’s foreign exchange reserves are invested in U.S. Treasuries.

Data show that the price of 10-year U.S. Treasuries fell only slightly at the end of August compared to the end of July, indicating that valuation changes contributed very little to the overall decline in foreign securities holdings.

If this intervention was again funded by selling U.S. Treasuries, it suggests that even as U.S. officials increase their focus on the stability of the Treasury market—especially with midterm elections approaching—Japan remains willing to continue on this path.

U.S. Treasury Secretary Scott Bessent recently announced that the government would double the size of long-term Treasury buybacks over the two months ending November 4. This move appears aimed at curbing upward pressure on long-term yields.

Data released on Monday shows that Japan's total foreign exchange reserves fell by $94.6 billion at the end of August to $995 billion. However, the remaining reserves still indicate that authorities have ample resources if further interventions are needed. Foreign currency deposits, another potential source of intervention funds, decreased by $6.9 billion during the month.

Besides these funding channels, Japanese Finance Minister Satsuki Katayama indicated after the recent US-Japan joint intervention that Japan could utilize the Federal Reserve’s Foreign and International Monetary Authorities (FIMA) Repo Facility in future interventions. This tool allows Japan to obtain up to $60 billion in funds per day without selling U.S. Treasuries, thereby avoiding impact on Treasury yields while increasing the flexibility of potential intervention operations.