On July 2, 2026, Taiwan media Jiyu Zaikai reported that the Japanese government is considering utilizing 1.3 trillion dollars (approximately 210 trillion yen) in foreign exchange reserves as a war chest to stop the yen's depreciation, but that factors such as the Japan-U.S. interest rate differential are becoming a barrier.

The article introduced that the yen's exchange rate broke through 1 dollar = 162 yen on June 30, updating its lowest value since 1986. It conveyed that the yen's depreciation accelerated after the U.S. Federal Reserve (FRB) hinted at the possibility of future additional interest rate hikes.

It also mentioned that the Japanese government conducted a record-high foreign exchange intervention, injecting 11.73 trillion yen into the market from late April to May, and pointed out that the effects of the intervention were nullified by further yen depreciation. Although there is a view that the possibility of intervention remains high in the short term, it assessed that repeated statements by government officials expressing firm measures are, on the contrary, weakening the warning's effectiveness.

Furthermore, although the Bank of Japan raised its policy interest rate to 1% in June, it was unable to halt the trend of yen depreciation as it remained significantly lower than U.S. interest rates, and it also mentioned that speculative short positions on the yen reached their highest level since July 2024.

On the other hand, as Prime Minister Sanae Takaichi is promoting aggressive fiscal spending, the hurdle for the Bank of Japan to raise interest rates early, which carries the risk of an economic downturn, is high, conveying a situation where it faces a significant dilemma.

The article introduced that some lawmakers have proposed that the Japanese government should integrate its 1.3 trillion dollars (approximately 210 trillion yen) in foreign exchange reserves into a sovereign wealth fund to improve its management system and secure a "war chest" for future foreign exchange intervention. Prime Minister Takaichi also advocates for aggressive fund allocation, stating that the aim is to improve investment returns and supplement strained fiscal funds.

On the other hand, government officials responsible for the practical implementation conveyed that opinions are emerging that it is unrealistic to significantly change the composition, such as investment methods, because foreign exchange reserves are ready funds to be used immediately during a sudden yen depreciation. (Edited/Translated by Kawajiri)