US dollar/yen basis blow-out to –100bp on negative rates

Bank of Japan's policy adds to the dollar-funding dilemma of domestic banks

dollar-yen
US dollar bond issuance and deposit taking are the main routes for Japan's banks to get US dollar cash

The Bank of Japan's (BoJ) introduction of a negative interest rate policy has pushed the dollar/yen cross-currency basis to –100 basis points for the first time in four years, making it more expensive for Japan's banks to raise US dollar funding to invest in higher-yielding assets abroad.

The central bank's move to apply a negative interest rate to some dealer account balances at the BoJ has made it more difficult for domestic banks to obtain sufficient yield in yen-denominated investments

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