Asian governments spent about $50 billion in foreign-exchange reserves last month — the highest level since March 2020 — to defend their currencies from a relentless advance in the US dollar.
Exante Data Inc., a firm that specializes in tracking global capital flows, estimates emerging Asian nations excluding China spent nearly $30 billion with dollar sales in the spot market in September alone. That number rises to $50 billion when Japan is included.
Dollar sales in the region over the first nine months of the year have reached approximately $89 billion including Japan, marking the most active period for foreign-exchange expenditures since at least 2008, according to Exante. The firm bases its estimates on data from central banks and other government authorities and adjusts them for changes in foreign-exchange rates.
The increase comes as the Bloomberg Dollar Spot Index, which measures the greenback against a basket of other major currencies, is trading at an all-time high in the aftermath of the most aggressive hiking of interest rates since the 1980s. The surge in the greenback has reduced the value of the stockpile of other currencies in central banks’ portfolios.
While recent dollar sales by countries including South Korea, India, Taiwan and Japan have been largely well publicized, activity by other countries was documented mostly through central bank reporting. In addition to Japan’s $20 billion in sales in September, South Korea sold approximately $17 billion, according to Exante, based on data currently available from the nation’s central bank. Hong Kong, Philippines, Taiwan and Thailand were also net sellers of dollars for the month of September, according to the firm.
“Their currencies are under pressure in the face of higher interest rates,” said Alex Etra, a senior strategist at Exante. “There’s an unusual degree of uncertainty of high US interest rates might go.”
The pace of intervention may not be over, with the yen’s drop to its lowest level in more than 30 years on Thursday bringing back chatters of possible action from Japanese authorities after the pick up in activity last month.
To be sure, Asian governments have frequently resorted to intervention in foreign-exchange markets in the past to slow down or control volatility, as well as weaken currencies. But last month’s dollar selling tops volumes seen in the early days of the pandemic in March 2020.
The draw down in reserves could stem in part from a broader re-allocation of assets as well as declining valuations, Etra said. But to a large degree comes down to central banks needing to sell reserves in order to have cash at hand.
Foreign-exchange reserves are falling across the world. The global reserves stockpile declined more than $1 trillion, or 8.9%, this year to less than $12 trillion, the biggest drop since Bloomberg started to compile the data in 2003.