I think that the chance of selling off their dollar-denominated foreign reserves is maybe about 10%, just to pick a round number. It's maybe about a 20%-30% chance that they will keep the foreign reserve level about the same.
Instead, I think it's about 60%-70% likely that they will increase their foreign reserves. Why? Because it lowers the value of the yen, which will help their exports (if that mechanism is not obvious, remember, in order for them to buy dollars, they sell yen, which pushes the price of the yen down.)
Right now, the yen is in record high territory against the dollar (and, note, that means that their dollar-denominated foreign reserves are worth less).
My guess is that it would help the Japanese economy a lot more to get the export machine fired up rather than just selling off their vast foreign reserves at rock-bottom prices --- and which would also push up the value of the yen.
(And, yes, for the zaiteku set out there, it is possible to mitigate moving the yen-dollar rate, but at the size of these moves, it would take the Fed's cooperation.)
” Why? Because it lowers the value of the yen, which will help their exports “
A ‘cheaper’ yen means lower prices for their exports, sure - but there’s another side to that equation, since Japan IMPORTS virtually all of its raw materials, which means that they will be correspondingly more expensive....
At some point, that congruency squeezes margins so that there is no excess capital left available for rebuilding....
(Or, more likely, I’m not conversant with the nuances, here...)