Japan's foreign currency reserves are hitting record highs, so long as the BOJ doesn't sterilise and continues with monetary easing, this could turn out to be one of the best investments in history the day the dollar goes on the rebound. Certainly they could prove to be a lot more interesting for the central bank than Japan government bonds.
Japan's foreign exchange reserves soared by $43.65bn to $543.1bn in May, providing further evidence that the government has sharply stepped up its already massive efforts to weaken the yen. Peter Morgan, economist at HSBC in Tokyo, said the new evidence indicated that Japan might be on the verge of "writing a new chapter in the history of currency intervention in the coming months". So long as the US continued to let this scale of intervention go without complaining, he said, there was no upper limit to the amount of yen Japan could sell. On Friday the yen defied Japan's wishes by strengthening sharply in afternoon trading to ¥117.8 to the dollar from ¥118.8 the previous day. The International Monetary Fund this week scolded Japan for its interventionist policy, saying it was pointless trying to buck market trends. The huge intervention was on Friday matched by a verbal assault from the prime minister down as ministers lined up to say the yen was too strong compared with Japan's economic fundamentals. Exports, which are hindered by a strong currency, were last year one of the few bright spots in Japan's sluggish economy. Heizo Takenaka, economy minister, told parliament: "There are many people who think the yen is strong relative to purchasing power parity and I share that view." Masajuro Shiokawa, finance minister, has said several times in the past few months that the Japanese currency would be worth about ¥150 to the dollar if it were calculated according to purchasing power parity.
Source: Financial Times