Skip to content

Subscriber Only

BOJ’s $185 Billion Bank Funding Fix Upends Money Markets

Bank of Japan encouraged banks to borrow dollars, people say
Pre-emptive move had knock-on effects in money markets

A pedestrian wearing a protective mask walks past the Bank of Japan headquarters in Tokyo, Japan. — A pedestrian wearing a protective mask walks past the Bank of Japan headquarters in Tokyo, Japan.
Photographer: Kiyoshi Ota/Bloomberg

By

Stephen Spratt,

Takashi Nakamichi, and

March 31, 2020, 1:54 AM UTCUpdated onMarch 31, 2020, 9:22 AM UTC

The Bank of Japan went to such lengths to ensure local banks had enough dollars to weather a global liquidity crunch that it may have inadvertently contributed to a surge in repo-market rates to a record.

The BOJ offered Japanese banks cheap access to dollars, and encouraged them to borrow as much as they wanted, according to people with knowledge of the matter. When the lenders complied -- to the tune of $185 billion net and counting -- the collateral they posted was sucked straight out of the repurchase markets, another key link in the financial plumbing.