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

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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