Japan will increase its war chest for currency intervention for a second straight year, the government said on Friday, giving it flexibility in case it needs to step into the market to sell yen again. In its state budget for the next fiscal year beginning in April 2011, the government will raise the borrowing limit for currency intervention for the foreign exchange special account by 5 trillion yen ($60 billion) to 150 trillion yen.
Prior to the budget announcement, sources familiar with the situation told Reuters that Tokyo would raise the ceiling by that amount in response to an increase in its debt issued to finance currency intervention. Japan spent more than 2 trillion yen in September in its first currency intervention in more than six years, to stem a rise in the yen that has hobbled the crucial export sector and threatened to derail the country's economic recovery.