Japan to refine yen intervention reserves

By Brittany Hayes 24/06/2026 2 min read 9 views

Japan’s government is reviewing ways to better manage its $1.3 trillion foreign exchange reserves, the country’s financial buffer for future yen intervention, according to a draft growth strategy report.

The move comes as Prime Minister Sanae Takaichi pushes for more proactive economic spending while trying to shore up public finances. The draft states the government will study how to improve the management and use of public assets, including the foreign exchange fund special account, as part of a broader effort to boost returns and replenish strained finances. This reflects Takaichi’s policy agenda, which centers on supporting Japan’s economy through targeted fiscal measures.

Tokyo intervened in late April to prop up the yen, spending $73 billion after the currency fell past 160 per dollar. The operation led to a record 5.6% drop in reserves the following month, exposing the strain of sustained intervention. The sharp decline showed the challenges of maintaining large-scale currency support, as repeated interventions can rapidly deplete the reserves.

The reserves, built from past dollar-buying operations, are largely held in US Treasuries. Most of the surplus they generate, including interest income, funds the state budget. The draft strategy does not specify changes to the asset allocation, but it acknowledges that the reserves serve as a critical funding source for government operations.

But government officials say a major overhaul of the reserves’ portfolio is unlikely. The primary role of the reserves remains ensuring liquidity for currency intervention, and shifting to riskier investments could jeopardize that purpose. The draft strategy emphasizes maintaining the reserves’ stability, as their core function is to provide immediate financial firepower for yen support when needed.

“It would be difficult to pursue returns in a way that runs counter to the purpose of the reserves,” said a source familiar with the confidential report. The source noted that any changes would need to align with the reserves’ fundamental role in safeguarding Japan’s financial stability.

Akira Moroga, chief market strategist at Aozora Bank, warned that prioritizing profits could undermine the safety of the reserves. “Ultimately, foreign reserves exist to support a country’s credibility, so they should primarily be held in highly reliable and liquid assets,” he said.

Saisuke Sakai, senior economist at Mizuho Research Institute, questioned the feasibility of reallocating reserves. “If you want to make effective use of foreign exchange reserves, it would mean selling US Treasuries,” he said. Sakai pointed out that divesting from Treasuries at a time of rising US long-term interest rates could complicate Japan’s relationship with its key ally, given its status as the largest foreign holder of such securities.

Japan remains the largest foreign holder of US Treasuries.