TOKYO, June 19 — Japan, the biggest taker of cheap dollar funding from the US Federal Reserve during the coronavirus pandemic, is weaning itself off that supply as it shies away from emergency swaps and returns to now sedate interbank markets. When the Federal Reserve announced cheap dollar swap...
A view shows the Federal Reserve building in Washington August 22, 2012. — Reuters pic
From April through this week, the Bank of Japan was the biggest user of that cheap funding, taking up as much as US$225 billion or more than half of what was on offer, as a banking sector addicted to investing and lending overseas struggled to get the dollars it needed from interbank markets. The BOJ’s outstanding dollar swaps with the New York Fed stood at US$171.4 billion on June 18, which is down from a peak set in late May but still accounts for 61 per cent of the Fed’s total outstanding dollar swaps with major central banks.
“Too much reliance on central bank swap lines is not healthy. Of course, Japanese banks recognise this.” Japan’s commercial banks pounced on the cheaper dollars to fund their dollar lending overseas, especially because some of these banks do not have enough dollar-denominated deposits to lend out, analysts said.
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