Japan's foreign reserves fall to 1.101 trillion U.S. dollars in November

13:26, December 07, 2010      

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Japan's official reserve assets fell in November to 1.101 trillion U.S. dollars, down 17.09 billion U.S. dollars from a month earlier, the Ministry of Finance (MOF) said in a report on Tuesday.

November's figures dropped in part because Japanese authorities did not conduct any foreign exchange intervention activities between Oct. 28 and Nov. 26, the ministry said.

Japan spent 2.1249 trillion yen (25.69 billion dollars) on currency intervention in the month to Sept. 28, the ministry said earlier, at which time Japan's foreign reserves, the world's second-biggest after China's, hit a record high of 1.118 trillion U.S. dollars at the end of October, a month after Tokyo stepped into the market to stem the yen's rise against the dollar.

Analysts said the reserves declined due to the MOF's decision to hold off on large-scale forex intervention in November to sell yen for the U.S. currency, as was the case in October, due to the U.S. dollar and the euro both showing embryonic signs of recovery, boosting the value of Japanese exports and Japanese firms' competitiveness abroad.

The largest swings in Japan's forex reserves occur when the Bank of Japan (BOJ)intervenes in the currency market on behalf of the MOF to prevent a steep appreciation or depreciation of the yen, as was the case in September.

Japan's forex reserves remain the second largest in the world after China's which stand in the region of 2.45 trillion U.S. dollars.

Large reserves of foreign currency allow the Japanese government to manipulate exchange rates -- usually to stabilize the rates to provide a more favorable economic environment, and the greater Japan's foreign reserves, the better position it is in to defend itself from speculative attacks on its currency.

In addition, Japan's forex reserves are important indicators of its ability to repay foreign debt and is used to determine Japan's credit rating.

Standard & Poor's Ratings Services currently has a AA credit rating for Japan.

The credit health of Japan, which has been struggling under a growing mountain of debt, was set to further deteriorate prior to the central bank's recent moves to halt the rise of the yen, which was severally impacting Japan's export-led economic recovery and combat deflation by maintaining razor-thin interest rates.

Japan's foreign currency reserves include securities, deposits, gold, International Monetary Fund special drawing rights and other assets.



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