Japanese banks tapping Fed’s ‘swap lines’ for $32.8 billion

Bloomberg

Japanese banks tapped into the Federal Reserve’s revamped swap lines, taking up a total of about $32 billion in the first operation since the US central bank lowered rates on Sunday.
Lenders from the Asian nation borrowed about $30.3 billion for 84 days at 0.370% in the swap coordinated by The Bank of Japan. They borrowed about $2.05 billion in the 7-day tenor operation at 0.410%. Together, that’s the biggest use of the swap lines by Japan since 2008.
Three-month cross-currency basis for dollar-yen — a proxy for how expensive it is to get the greenback — steadily tightened in Asia trading following the allotment, suggesting less dollar borrowing pressure going forward.
The large take-up is a sign that the new lower rates are enticing dollar borrowers and should help to serve the Fed’s aim of removing funding strains, which have been permeating borrowing channels such as cross-currency basis and FX swaps. The authority beefed up existing swap lines with major central banks as part of its broad easing package, lowering the rate by 25 basis points and adding a new 84-day tenor.
The operation also shows the importance of US dollar funding. While the BOJ too previously announced yen repurchase operations to boost liquidity, they have been met with very limited take-up by banks. For example, an operation that offered as much as 500 billion yen ($4.7 billion) saw a take up of just 0.5 billion yen.
The BOJ on Tuesday conducted repurchase agreements, offering to sell 1.5 trillion yen of Japanese government bonds to banks, which could use the securities as a collateral to borrow dollars.
Settlement for Tuesday’s swap operations is on March 19. Central banks of England and Europe are set to hold 7-day and 84-day US dollar swap auction on Wednesday.

governor Kuroda keeps rate cut option open
The Bank of Japan (BOJ) strengthened its stimulus and Governor Haruhiko Kuroda pledged to do more if needed after the Federal Reserve slashed interest rates to address the rapidly mounting economic shock of the coronavirus pandemic.
The BOJ said it would buy more assets including exchange-traded funds and corporate bonds, and offer a new zero-interest rate loan program to ensure companies had the financing they needed, to help prop up sentiment and maintain stability in markets.
Kuroda, speaking after the decision, said the BOJ wanted to send a message to investors that it was doubling its pace of ETF purchases to stabilize markets for as long as needed. He also said the BOJ was watching the impact of the virus closely and wouldn’t hesitate to ease more if needed, including cutting its negative interest rate.
“We can cut the rate deeper,” Kuroda told reporters in Tokyo. “We will do so if needed.”
Under active buying of ETFs, the central bank will be able to buy at an annual pace of up to 12 trillion yen, double the annual target of about 6 trillion, suggesting more aggressive purchasing in the near-term.