MNI INSIGHT: BOJ Keeps Close Watch On Dollar Demand From Banks

Bank of Japan officials are watching for any sharp rise in dollar demand from Japanese banks ahead of the March-end fiscal year with conditions stable now, but as uncertainty is heightened on Moscow's invasion of Ukraine and the blockage of SWIFT access to select Russian banks affecting European financials, MNI understands.

The BOJ conducts one-week dollar repo operations weekly but the number of successful bids at recent operations was only USD2 million, meaning that Japanese banks are not showing signs of issues with dollar liquidity. The three-month dollar/yen basis swap spread widened at the start of the week but narrowed to normal levels by early Friday.

A stable U.S. short-term money market contributes to keeping demand for dollars by Japanese banks stable as well, the BOJ views. Federal Reserve Chair Jerome Powell on Wednesday said he is confident the U.S. central bank's standing liquidity facilities support good market functioning, see: MNI INSIGHT: Cenbanks Eye Dollar Funding, Have Tools In Place.