Japan's foreign reserves, the world's second-largest, rose to a record $970.185 billion at the end of November, largely because lower U.S. interest rates boosted the value of U.S. bonds held in the reserves, the Ministry of Finance said on Friday.
They rose 1.6 percent from $954.484 billion at the end of October, a ministry official said, up for the sixth straight month and marking a record high for the fifth month in a row.
The yield on the benchmark 10-year U.S. Treasury note fell to 3.942 percent at the end of November from 4.475 percent at the end of October, the official said.
The euro's rise against the dollar inflated the value of euro-denominated bonds in the reserves, he said. The euro traded at $1.4633 at the end of November, against $1.4487 a month earlier.
Japan's reserves are second only to those of China, which had about $1.455 trillion in its reserves at the end of October.
Japan's reserves ballooned after yen-selling intervention that amounted to a record 20 trillion yen ($175 billion) in 2003 and a further 15 trillion yen in the first three months of 2004, as Tokyo tried to keep a rapid rise in the yen from derailing a fragile economic recovery and accelerating deflation.
Tokyo has kept out of the market since then, but the reserves have continued to grow steadily, partly on interest rate income from deposits and bonds held in the reserves.
November's reserves figure included $820.862 billion in securities and $125.227 billion in deposits. The rest includes IMF reserve positions, special drawing rights and gold stocks.
The government does not disclose the currency breakdown of the external reserves. But historical data on Japan's currency intervention, which has mostly taken the form of dollar buying, suggests most of Tokyo's hefty reserves are in dollars.
Finance Minister Fukushiro Nukaga on Friday expressed reservations about the possibility of setting up a government fund to manage foreign reserves to seek higher returns and use part of the profit to bolster public finances.
"The basics of the special account for foreign reserves are ensuring liquidity and stability," he said, adding that setting up a fund would not fit well with that purpose.
Japan has been reluctant to diversify its forex reserves and seek higher returns by making active investments, unlike many other countries that have recently been investing part of their reserves in stocks and other high-risk, high-return assets.