As central banks have stepped in to defend their currencies, Asia’s foreign reserves have decreased this year, with South Korea, Indonesia, and Japan seeing the biggest reductions.

By the end of June, foreign reserves in 12 countries—from Japan to India—had dropped by almost $50 billion to $7.5 trillion. During the same time last year, they had increased by 2.2%.

According to statistics from exchanges and bond market groups, foreign investor flows into Asian bonds decreased 34% in the first half of this year compared to the same period last year.

Given that most nations have healthier balance sheets and under control external liabilities, the decline in reserves is not severe enough to start a financial crisis or make countries struggle with their import payments, but analysts warn that it could still have an impact on investor sentiment and possibly result in portfolio outflows.

For South Korea, China, and India, the import-cover ratios—which show how many months a nation can withstand imports in the event that all other inflows stop—have gone up this year. Reuters analysis show that these percentages have decreased for nations including Malaysia, Indonesia, and Thailand.

Because of the dollar’s strength and the Federal Reserve’s hawkish stance, Asian currencies have plummeted in the first half of the year.

With an almost 11% decline versus the dollar, the yen has been the worst performer in the area. As a result, the central bank has likely intervened many times this year to protect the currency.

In April, Indonesia’s central bank also increased interest rates in an effort to stop capital flight and stop the rupiah’s decline in value.

Regional currencies are predicted to see increased volatility in the second half of the year due to important events like the US elections and possible changes in the monetary policy of the Federal Reserve.

“The credibility of Asian central banks will be tested when the U.S. Fed starts cutting rates eventually, potentially causing a temporary depreciation in the dollar,” stated Gimme Credit senior analyst Saurav Sen.

“Countries that have the ability to increase reserves at that time to keep their currencies competitive vs. the dollar will be able to manage volatility. Countries like China and India come to mind,” Sen said.

India’s foreign reserves increased 4.9% to $653.71 billion in the first half of the year, defying the trend.

(Adapted from Reuters.com)

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