— Japan May FX Reserves $1.278 Trln Vs Apr $1.290 Trln
— Japan May FX Reserves Post 1st M/M Drop In 2 Months

TOKYO (MNI) – Japan’s foreign reserves fell to $1.278 trillion at
the end of May from $1.290 trillion at end-April, posting the first fall
in two months, mainly hit by declines in the euro and gold prices,
Ministry of Finance data showed on Thursday.

The nation’s foreign reserves hit a record high of $1.307 trillion
at the end of January.

Prices of spot gold fell to $1,560.51 per ounce at the end of May
from $1,664.75 a month earlier while the euro slumped to $1.237 from
$1.324.

These developments more than offset the effects of higher U.S.
Treasury prices.

Yields on Treasury’s 10-year notes, which move inversely to prices,
fell to 1.56% at the end of May from 1.91% at the end of April, led by
flight-to-safety asset flows amid heightened concerns about the spread
of the debt crisis in Europe.

Japan’s forex reserves remain the second largest in the world after
China’s, which stood at $3.305 trillion at the end of March.

At the end of last month, Japan’s foreign currency reserves stood
at $1.20 trillion, IMF reserves at $15.39 billion, SDRs at $19.49
billion, gold at $38.33 billion and other reserve assets at $471
million.

Japan’s forex reserve data are closely watched for evidence of how
the country is managing its vast foreign currency holdings.

The biggest changes in Japan’s forex reserves usually occur when
the Bank of Japan intervenes in the currency market on behalf of the
Ministry of Finance to prevent a steep appreciation or depreciation of
the yen exchange rate.

Japan spent some Y9.09 trillion on dollar-buying intervention in
the final quarter of 2011. The first action came on Oct. 31, when the
yen hit a record high of Y75.32 versus the dollar, which was followed by
more yen selling from Nov. 1 to Nov. 4.

Last year Tokyo also conducted currency market intervention in
August and March, with the latter operation forming part of a
coordinated move by the Group of Seven industrialized nations to aid
Japan in the wake of the March 11 earthquake disaster.

That intervention was the first concerted G7 forex action since
September 2000, when the euro came under heavy selling pressure as
capital flowed into the U.S. stock market at the peak of the IT bubble.

In September 2010, the reserves were pushed up by the Japanese
government’s large-scale forex intervention to sell yen for the U.S.
currency — the first government intervention in over six years — in a
bid to prevent the yen’s rapid rise from hurting exporter profits and
thus a sustained economic recovery.

Before the large-scale intervention to sell a total of Y2.125
trillion for the dollar on Sept. 15, 2010, Japan had stayed out of the
forex market since mid-March 2004, when it ended its massive
15-month-long yen-selling operation.

tokyo@marketnews.com
** MNI Tokyo Newsroom: 81-3-5403-4835 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$,M$$FX$]