Japan's foreign reserves rose to a record 1.139 trillion U.S. dollars at the end of May from 1.136 trillion U.S. dollars at the end of April, marking a third- straight month-on-month rise, the Ministry of Finance said in a report on Tuesday.

Japan's foreign reserves were increased by higher foreign bond prices, particularly U.S. Treasury bonds and gains made on foreign asset holdings' returns, the ministry said.

Japan's foreign exchange reserves consist of securities and deposits denominated in foreign currencies, International Monetary Fund reserves, IMF special drawing rights (SDRs) and gold, and are the second largest in the world after China's.

At the end of May, Japan's foreign currency reserves totaled 1. 062 trillion U.S. dollars, 18.47 billion U.S. dollars in IMF reserves, 20.55 billion U.S. dollars in SDRs, gold at 37.80 billion U.S. dollars and other reserve assets totaling 456 million U.S. dollars, according to the ministry's latest figures.

Japan's foreign exchange reserves are being increasingly watched for evidence of how the country is managing its vast foreign currency holdings and the biggest fluctuations usually occur when the Bank of Japan intervenes in the currency market on behalf of the MOF to prevent a steep appreciation or depreciation of the yen.

Foreign reserves here hit their highest in October 2010 at 1. 118 trillion U.S. dollars a month after Japan stepped into the markets for the first time in six years in September.

Japan started dumping the yen and boosting the dollar in order to safeguard its fragile export sector that relies on a weaker yen to make Japanese products more competitive and profitable in international markets.

Similarly in March, Japan intervened again in the foreign exchange markets to the amount of 8.64 billion U.S. dollars, as yen was sold as part of a Group of Seven industrialized nations' multilateral move to weaken the currency to aid Japan in the wake of the March 11 earthquake and tsunami.