MNI BRIEF: BOJ Sees Banks’ Dollar Funding Staying Stable

Bank of Japan officials see just a slight risk that the huge fiscal spending by the U.S. government will make it more difficult for commercial banks there to raise dollar funds unless demand for the greenback spikes due to unstable financial markets, MNI understands.

Commercial banks, including Japanese banks, in the U.S. have considerable dollar funds from corporate deposits following U.S. stimulus measures and monetary easing. While higher U.S. interest rates will raise funding costs, dollar liquidity won't be hit, in the BOJ's view. Nevertheless, BOJ officials continue to keep a close eye on Japanese banks as the central bank considers foreign-currency funding as one of three major risks for the stability of the financial system with the other two being credit costs and losses on securities.

The BOJ and other major central banks have announced will suspend three-month dollar operations in July. They reduced the frequency of one-week dollar operations to once a week from three times per week in September 2020.