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 eurozone 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. 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.
A call by the Greek prime minister for a national referendum on the euro zone's latest measures to reduce Greece's debts provided the latest reason for markets to swoon. Stocks have wiped out all the gains they made last week in a relief rally after EU leaders drew up the measures. Global markets are likely to remain under intense strain because there is little chance that Europe's debt problems will be resolved soon, BoJ policymaker Shirai said.
She said Greece was in a negative spiral as taking additional steps to reform its public finances came at the cost of further weakness in its economy. Having already cut rates close to zero, the central bank last week eased monetary policy by boosting its funds for asset purchases to 20 trillion yen ($255 billion). The BoJ next meets to review rates on November 15-16. On Monday, Japan sold nearly $100 billion worth of yen - a record amount for single-day intervention - to tame its high-flying currency.