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ECONOMY

BOJ supplies dollars to markets for first time post-Brexit

  • June 28, 2016
  • , Nikkei , P. 5
  • Translation

The Bank of Japan (BOJ) plans to supply U.S. dollars to financial markets today, the first such operation since the UK voted to leave the European Union. Amid confusion in financial markets following Brexit, banks are accelerating moves to accumulate U.S. dollars as a key currency and many are paying close attention to the level of demand for dollars supplied by the BOJ.

 

The BOJ plans to supply U.S. dollars through an open market operation it conducts every week. The operation lets the central bank lend dollars to requesting financial institutions at a slightly higher interest rate.

 

Usually, banks acquire dollars from the market. When the banks lack access to sufficient funds, the BOJ conducts the dollar-supplying operation. No bids were submitted in half of the ten most recent operations, and even in cases where there were bidders, the amount was relatively small at 1 to 2 million dollars.

 

Following Brexit, demand for U.S. dollars is increasing worldwide. Japanese banks are building up foreign-currency denominated financial investments due partly to the government’s negative interest policy, so there is a steady demand for dollars. As a result of Brexit, the cost of procuring dollars from the market for domestic financial institutions and corporations temporarily exceeded the level during the European debt crisis in 2011.

 

Under the circumstances, more financial institutions may try to secure dollars through participation in the BOJ’s operation on Tuesday. The BOJ is paying close attention to dollar procurement costs, fearing that if they remain high, the resulting strain on banks’ revenue will hinder the smooth functioning of the financial market.

 

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