Japan’s foreign reserves dropped $79.6 billion in August 2026 to $1.208 trillion, the largest monthly decline on record, as the country spent $98.6 billion on yen-buying intervention—a historic effort that included its first joint operation with the U.S. since 2011.
Japan’s foreign exchange reserves fell to $1.208 trillion by the end of August 2026, marking the largest monthly decline ever recorded, according to government data. The drop of $79.6 billion, or 6.18%, followed an unprecedented $98.6 billion intervention to stabilize the yen, which had weakened to 40-year lows near 164 per dollar earlier in the month. The intervention, the biggest in Japan’s history, was partly funded by selling U.S. Treasuries, a move confirmed by multiple sources.
Reserve Decline Linked to Record-Yen Intervention
The decline in Japan’s foreign reserves was driven by a sharp reduction in holdings of foreign securities, which fell $87.8 billion in August. This aligns closely with the $98.6 billion spent on intervention, though official data do not specify which assets were sold. The Finance Ministry confirmed that authorities spent ¥15.4 trillion ($98.6 billion) on the operation between July 30 and August 26, with part of the effort conducted jointly with the United States.
The intervention helped lift the yen from 164 per dollar to as high as 155.20 by mid-August, though it later retreated to around 155-156. The U.S. participation marked the first coordinated action between the two nations since 2011, surprising markets that had anticipated limited bilateral cooperation. Treasury Secretary Scott Bessent later stated that Washington will not hesitate to participate in further joint intervention,
signaling potential future collaboration.
Treasury Sales Funded Part of the Intervention
Japan’s foreign securities holdings, which account for about 70% of its reserves, fell by $87.8 billion in August, a decline nearly matching the scale of the intervention. While the Finance Ministry did not disclose the specific assets sold, market participants estimate that roughly 70% of Japan’s reserves are in U.S. Treasuries. This suggests that a portion of the intervention funding came from selling these bonds, a move that could influence global markets.
The price of 10-year U.S. Treasuries remained largely stable through August, implying that the decline in Japan’s holdings was due to actual sales rather than valuation losses. This aligns with reports from The Deep Dive, which noted that Japan’s selling of Treasuries could impact long-term yields. Treasury Secretary Bessent has since doubled the pace of long-dated bond buybacks through November 4, a move aimed at stabilizing yields amid the intervention.
U.S.-Japan Coordination and Future Implications
The joint intervention underscored a rare alignment between Japan and the U.S. on currency policy, with both nations seeking to counteract yen weakness. The operation was supported by the Federal Reserve’s FIMA repo facility, a tool introduced during the pandemic to provide liquidity without direct bond sales. Finance Minister Satsuki Katayama has hinted at using this mechanism in future interventions, which could limit the impact on U.S. Treasury markets.
Japan’s remaining foreign reserves stood at $995 billion by the end of August, still substantial enough to fund further interventions. However, the scale of the August operation has raised questions about the sustainability of such measures. The Bank of Japan’s upcoming policy meeting on September 17-18, where a rate hike is widely expected, could add another layer of complexity to the yen’s trajectory.
Unresolved Questions and Market Watch
While the August intervention succeeded in temporarily boosting the yen, its long-term effectiveness remains uncertain. Markets will closely monitor whether Japan continues to sell Treasuries to fund future operations, a practice that could strain U.S. bond markets. Additionally, the role of the FIMA facility in future interventions and the potential for further U.S.-Japan coordination will shape the currency’s path.
The intervention also highlights the interconnectedness of global financial systems. Japan’s reliance on U.S. Treasuries for liquidity underscores how central bank actions in one country can ripple across markets. As both nations navigate these dynamics, the focus will shift to whether this joint effort sets a precedent for future currency stabilization strategies.
