Foreign US treasury holdings hint at yen intervention funding

Fresh data on the Federal Reserve’s various accounts hints at how Japanese policy makers may have further funded currency interventions to bolster the beleaguered yen.Central banks’ holdings of US securities fell by about $10.6bn, leaving total holdings at $2.95tn, data as of May 8 show. Meanwhile, monetary officials stashed $362bn at the Fed’s reverse repurchase agreement facility, up from $360bn a week earlier, according to the latest data from the central bank.The figures showing the cash drain cover a week that included at least another instance where Japanese policymakers likely intervened in foreign-exchange markets to support the yen, which is the weakest Group-of-10 currency this year versus a broadly strengthening dollar.On April 29, a holiday in Japan, the yen fell to a fresh 34-year low of 160.17 per dollar before sharply rebounding in thin trading. Following the conclusion of the Fed’s two-day policy meeting three days later, the yen abruptly rallied more than 3% in the waning hours of the US trading day.Week before the last, data from the prior reporting period showed a $17.8bn drop in balances in a separate cash account used by central bankers, suggesting these funds may have been tapped to prop up the currency at some point.However, historically, Japanese authorities haven’t stockpiled their intervention resources at the Fed’s non-interest-bearing foreign official deposits category, according to Wrightson ICAP. That points to the possibility that the latest drop in foreign central bank Treasury holdings may have also been used in efforts to support the yen.The Ministry of Finance has refrained from confirming interventions, but a Bloomberg analysis of Bank of Japan accounts suggest interventions took place. The estimates indicate that policymakers likely spent some ¥9tn recently, or nearly $60bn at current exchange rates, to bolster the currency — an amount on par with previous interventions that last took place in the fall of 2022.Japan’s foreign currency reserves were worth about $1.14tn at the end of April, falling by $14.2bn from the previous month, according to the latest data from the country’s Ministry of Finance. That was driven by a drop in foreign securities, which declined by about $17bn to $978bn. Roughly $157bn was parked with the Bank for International Settlements and other foreign central banks, up slightly from $155bn at the end of March.