Japan’s foreign-exchange reserves fell a record $79.6 billion in August to $1.208 trillion as Tokyo’s strategy for supporting the yen shifts from large-scale currency intervention toward higher interest rates. The decline was driven mainly by an $87.8 billion reduction in overseas securities, reflecting the scale of Japan’s recent yen purchases and dollar sales. Finance Minister Satsuki Katayama said Japan and the United States remain aligned on currency policy and will maintain communication with the U.S. Treasury to support orderly markets. Japan spent ¥15.4 trillion, about $100.4 billion, between July 30 and August 26, lifting the yen from around ¥164 per dollar to approximately ¥155.2. Markets now almost fully price a 25-basis-point Bank of Japan increase to 1.25% at the September 17-18 meeting, while resistance to tightening has weakened inside Prime Minister Sanae Takaichi’s administration. A higher Japanese policy rate could narrow the interest-rate gap with the United States and support the yen, though further intervention could create tension with Washington if it requires selling U.S. Treasury holdings. Japan could alternatively use the Federal Reserve’s Foreign and International Monetary Authorities repo facility, which allows foreign central banks to exchange U.S. government debt for dollars without selling in open markets and provides up to $60 billion per day. Japan has never used the facility. The coming weeks will show whether the Bank of Japan follows through, potentially accepting tighter financial conditions as the cost of currency stability.