Japan to confirm size of yen-buying intervention, eyes on size of war-chest

© Reuters. FILE PHOTO: Banknotes of Japanese yen are seen in this illustration picture taken September 23, 2022. REUTERS/Florence Lo/Illustration/File Photo

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - Japan's government will confirm on Friday the amount it spent intervening in the foreign exchange market last week to prop up the yen, which may highlight the hurdles Tokyo could face in making frequent forays into the market to stem sharp falls.

Estimates based on money market brokers showed Tokyo likely spent a record 3.6 trillion yen ($24.9 billion) on Sept. 22 in its first dollar-selling, yen-buying intervention in 24 years to stem the currency's sharp weakening.

A final figure will become available when the Ministry of Finance (MOF) releases the total amount it spent for intervention from Aug. 30 to Sept. 28, at 1000 GMT on Friday.

Japan currently holds roughly $1.3 trillion in reserves, the second biggest after China, of which $135.5 billion are held in the form of deposits parked with foreign central banks and the Bank for International Settlements (BIS).

The $135.5 billion in deposits can easily be tapped to finance further dollar-selling, yen-buying intervention. This means Japan is left with deposits than can finance four more interventions of the scale conducted on Sept. 22.

"Even if it were to intervene again, Japan likely won't have to sell U.S. Treasury bills and instead tap this deposit for the time being," said Izuru Kato, chief economist at Totan Research, a think-tank arm of a major money market broker firm in Tokyo.

If the deposits dry up, Japan would need to dip into its securities holdings sized around $1.04 trillion.

Of the main types of foreign assets Japan holds, deposits and securities are most liquid and can be converted into cash immediately.

Other forms consisted of gold, reserves at the International Monetary Fund (IMF) reserve and IMF special drawing rights (SDR), though procuring dollar funds from these assets will take time, analysts say.

($1 = 144.7200 yen)