Fresh data on the Federal Reserve’s various accounts hints at two potential ways Japanese policymakers may have funded currency interventions this past week to bolster the yen.
One source may have been a Fed facility where central banks stash overnight cash to earn a market rate. The amount held in this pool — the Fed’s foreign reverse repurchase agreement, or RRP, facility — as of May 1 was down about $8 billion from a week earlier, to $360 billion, figures from the central bank show. It was the first drop since the week through April 10. Meanwhile, a separate cash account used by central banks tumbled about $17.8 billion.
"Historically, the Japanese authorities have not stockpiled their intervention resources in the Fed’s non-interest-bearing foreign official deposits category,” Wrightson ICAP economist Lou Crandall wrote in a note to clients. "The interest-bearing foreign RRP facility offers more than enough liquidity to support FX operations," however, the week’s data "suggests that this was an exception" to their usual practice.