**Central Bank Reserve Managers Divest from Key Currencies in Q1: Focus on JPY and AUD**
*Original reporting credit: Adam Button, ForexLive.*
### Introduction
In the first quarter of 2024, global reserve managers have notably shifted away from the Japanese yen (JPY) and Australian dollar (AUD), according to a recent report from MUFG, one of the world’s leading financial institutions. This trend points to significant movements within the foreign exchange (FX) markets, as central banks and sovereign wealth funds reassess the composition of their international reserves amid changing economic conditions and monetary policy paths.
This extended analysis expounds on the findings from the MUFG note, sources for further data on central bank reserve allocations, and insights from recent publications by the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) to form a comprehensive picture of reserve manager behavior in Q1 2024.
—
### Key Takeaways from the MUFG Report
– **Reserve Managers’ Shifts:** Central bank reserve managers were net sellers of both the Japanese yen and Australian dollar in the first quarter of 2024.
– **Relative Divergence:** The yen and the Australian dollar are underperforming relative to G10 counterparts in terms of reserve allocations.
– **Broad Reserve Trends:** There has been a general move toward the U.S. dollar (USD) and, to a lesser extent, the euro (EUR), as global institutions pursue both safety and liquidity.
– **Influential Data Sources:** MUFG’s analysis draws on quarterly COFER (Currency Composition of Official Foreign Exchange Reserves) data from the IMF, which closely tracks official FX reserve holdings across the globe.
—
### Detailed Currency Performance Analysis
#### Japanese Yen (JPY)
– **Net Selling Evidence:** Q1 2024 saw marked selling of the yen, as indicated by the declining proportion of JPY within total allocated reserves.
– **Performance Implications:** The yen’s decline as a reserve currency reflects a combination of low yields, persistent deflationary risks, and the Bank of Japan’s (BoJ’s) dovish stance, especially compared to the aggressive tightening cycles of other major central banks.
– **Global Impact:** A weaker yen impacts global macroeconomic stability, especially for Asian economies tied to Japanese trade or those that use the yen as a regional reserve asset.
#### Australian Dollar (AUD)
– **Declining Demand:** Central banks have similarly reduced their holdings of the Australian dollar, although the pace has been somewhat less dramatic than the yen’s decline.
– **Yield Differential:** Historically, the AUD has been favored by reserve managers seeking higher yields; however, the Reserve Bank of Australia (RBA) has lagged behind in raising rates compared to the Federal Reserve, diminishing the currency’s attractiveness.
– **Commodity Exposure:** Australia’s reliance on commodities makes the AUD more susceptible to global growth slowdowns—a context reserve managers may be increasingly cautious of.
—
### Factors Influencing Reserve Manager Decisions
Read more on AUD/USD trading.