Study on Optimal Scale of Foreign Reserves during the Currency Internationalization from the Perspective of Japan

This paper employs the autoregressive distributed lag estimator to analyze the size of Japan's foreign exchange reserve under the process of Yen internationalization. This paper finds that the degree of Yen internationalization has a statistically significant but negative effect on the international reserve in the long run. In the short term, the degree of Yen internationalization has a correction function as Japan's international reserve adjusts to the long-term equilibrium. One contribution of this paper is to analyze the problem of reserve scale management under the background of currency internationalization. The conclusion of this paper is meaningful for RMB internationalization and China's management of foreign reserves.