UPDATE 1-Japan forex reserves $996.975 bln at end-May

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(Adds details)

TOKYO, June 6 (Reuters) - Japan's foreign reserves stood at
$996.975 billion at the end of May, down for the second straight
month as higher U.S. yields cut the value of U.S. bonds in the
reserves, the Ministry of Finance said on Friday. [JPRES=ECI]

The euro's fall versus the dollar also dented the value of
euro-denominated bonds in the stockpile, a ministry official
added, declining to say which of the two factors contributed the
most to a fall in the reserves.

It was the first time in four months that Japan's foreign
reserves -- the world's second-largest after China's -- sank
below $1 trillion, the official said.

Japan's reserves had been a record high of $1.016 trillion at
the end of March, according to the ministry.

The euro EUR= fell to $1.5559 at the end of May from
$1.5622 at the end of April, while the yield on the benchmark
10-year U.S. Treasury note US10YT=RR rose to 4.063 percent at
the end of May from 3.732 percent a month earlier, it added.

Japan does not give currency breakdowns for its external
reserves, but past Japanese currency intervention, which has
mostly taken the form of dollar buying, suggests most of Tokyo's
foreign cash pile is in the U.S. currency.

The ministry does not disclose the currency breakdown of
Japan's international reserves, but most is in U.S. dollars as
past intervention has taken the form of dollar buying.

Japan's reserves ballooned after yen-selling intervention
worth a record 20 trillion yen ($188.8 billion) in 2003 and a
further 15 trillion yen in the first three months of 2004, as the
government waged a campaign to prevent a rapid rise in the yen
from derailing Japan's then-fragile economic recovery.

Tokyo has stayed out of the market since then.

The massive reserves have stirred a debate among Japanese
lawmakers about whether Japan should follow countries like China
into launching a sovereign wealth fund to invest some of the cash
pile.

But the Ministry of Finance, which manages the reserves, is
against the idea, fearing a wealth fund will be too risky.
JAPAN OFFICIAL RESERVE ASSETS (in billion dollars)

END-MAY END-APRIL YEAR-AGO
TOTAL 996.975 1,003.836 911.137
To view the full tables, go to the website of the Ministry of
Finance here
(Reporting by Tetsushi Kajimoto)