📝U.K.'s Net Forex Reserves to Only Cover Two Months Of Imports: Saxo Bank

Japan’s fiscal and current account are also not in great shape, and it has a huge foreign debt. But it has huge FX reserves of the order of over $1.2 trillion as of end-August. This equates to 20% of GDP and over 18 months of import cover. Of this, about $136bn is deposits with foreign central banks that can be used immediately to intervene. So, while the Japanese yen remains vulnerable due to its twin deficits and high debt levels, the huge FX war chest still gives Japanese authorities some ammunition to intervene against excessive pace of yen decline.

Meanwhile, UK’s problem is not just in its high inflation but also its twin deficits and weak FX reserves position. Foreign currency debt levels in the UK are more contained, however, and that may be one of the reasons why FX reserves are low. U.K.’s net forex reserves of $100bn are also enough to only cover two months of imports, or roughly equal to 3% of GDP as compared to Japan’s 20% and Switzerland’s 115%. This gives the UK policymakers less room to prop up the sterling.

- Saxo Bank