New data from the Federal Reserve’s various accounts suggests two possible ways Japanese policymakers have financed currency interventions to strengthen the yen over the past week.
One source may have been a Fed facility where central banks store cash overnight to earn a market interest rate. The amount held in this pool — the Fed’s foreign reverse repurchase agreement — was down about $8 billion as of May 1 from a week earlier, to $360 billion, central bank figures show. It was the first decline since the week to April 10. Meanwhile, a separate cash account used by central banks plummeted by about $17.8 billion.
“Historically, Japanese authorities have not stored their intervention funds in the Fed’s category of non-interest foreign official deposits,” Wrightson ICAP economist Lou Crandall wrote in a note to clients. “The interest-bearing foreign RRP facility provides more than enough liquidity to support foreign exchange transactions,” but this week’s data “suggests this was an exception” to their usual practice.
