Japan's forex reserves down second straight month

Japan's foreign exchange reserves fell for the second straight month to USD 1.267 trillion at the end of December, down USD 8. 54 billion from the previous month, the Finance Ministry said Friday. However, the foreign reserves remained the world's second-largest after China's. The drop in foreign exchange reserves was mainly due to the declining market value of Japanese government-held bonds such as US Treasuries, which were affected by higher long-term interest rates in the US and Europe, the ministry said. A decline in gold prices also helped deflate Japan's reserves. Japan's foreign exchange reserves consist of securities and deposits denominated in foreign currencies plus the International Monetary Fund (IMF) reserve positions, IMF special drawing rights and gold. As of December 31, foreign currency reserves stood at USD 1.202 trillion, IMF reserves at USD 14.20 billion, IMF special drawing rights at USD 20.13 billion and gold at USD 29.56 billion. Japan's reserves are closely monitored for evidence of how authorities are managing vast foreign currency holdings, as the actions have significant impact on currency exchange rates and global bond markets, particularly in the US government bond market. The authorities did not intervene in currency markets to stem the yen's rise after spending JPY 9.09 trillion (USD 86.6 billion) in the final quarter of 2011. Japan is the only country with foreign reserves of more than USD 1 trillion besides China, whose holdings hit a record of USD 3.66 trillion at the end of September, according to the latest comparable data.