As if a mirror of the Federal Reserve, what is more important from the Bank of Japan flop today is what it did do rather than what it did not. Everyone was looking for at the very least an even quicker pace to QQE if not the full-blown ‘helicopter’ of momentum dreams. Instead, BoJ offered what appears tepidity. As widely expected, their ETF buying program was expanded to 2.7 trillion annually, but that wasn’t the end of the submission. The only other change was to double a ‘dollar lending’ program that few knew existed.
In April 2012, the Bank of Japan policy statement included the official approval of a plan to extend dollar loans from its supply of dollar ‘reserves’ to eligible Japanese companies obtaining overseas finance.
The goal of overcoming deflation will be achieved both through efforts to strengthen the economy’s growth potential and support from the financial side. With this in mind, the Bank will pursue powerful monetary easing, and will support private financial institutions in their efforts to strengthen the foundations for Japan’s economic growth via the fund-provisioning measure to support strengthening the foundations for economic growth. At today’s meeting, as shown in the Attachment, the Bank established detailed rules for a new U. S. dollar lending arrangement equivalent to 1 trillion yen, of which a preliminary outline was released at the previous meeting in March.
‘Eligible’ counterparties are narrowed specifically in the technical terms to only those firms who have accounts at FRBNY or have accounts at banks with settlement recourse to FRBNY (where BoJ’s assets are mostly in custody). All loans are in US dollars posted by eligible collateral with 1-year duration (and 3 available one-year rollovers, for a total of four years) at 6-month LIBOR refreshed every six months. The maximum loan per counterparty is $1 billion, with a total balance capped at $12 billion (those amounts were today doubled).
This post was published at David Stockmans Contra Corner on July 29, 2016.
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