BOJ supplies dollars in rare move, warns on markets

Wed Nov 2, 2011 6:50am EDT
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By Rie Ishiguro

KOFU, Japan (Reuters) - The Bank of Japan supplied dollars in market operations on Wednesday for the first time in more than a year, a sign of the global market strains that board member Sayuri Shirai separately said could push the yen higher again.

Dollar funding has become increasingly tight in money markets globally as uncertainty over bank exposure to the euro zone debt crisis raises fears of a new credit crunch.

Japan had been immune to these concerns as the Bank of Japan's operations to supply unlimited amounts of dollars went untapped since July last year. Money markets in Japan have been largely stable.

But on Wednesday, the central bank supplied $2 million for a week in one operation and $100 million for three months in a second operation. Bankers speculated the currency was likely sought by a non-Japanese bank with operations in the country.

"This is probably a foreign bank trying to secure funds for the end of the year," said Tomohiko Katsu, deputy general manager of the asset liability division of Shinsei Bank.

"Europe's debt woes are behind a widening in money market rates. Some banks will have to rely on funding from central banks."

The BOJ's fixed-rate dollar operation, in which it offers unlimited amounts of dollars against collateral, rarely draws bids because it usually costs more than borrowing dollars in the open market.

However, dollar-funding costs have risen in Japan reflecting market jitters over Europe's debt crisis, making it cheaper for banks to raise dollars under the BOJ's operation.   Continued...

<p>A man walks past the Bank of Japan headquarters building in Tokyo October 31, 2011. REUTERS/Yuriko Nakao</p>