TOKYO (Reuters) – The Bank of Japan has decided to tap $6 billion in cash from a government account in a rare arrangement to ensure it has enough ammunition to combat any market disruptions caused by a recent resurgence in coronavirus infections.
Under the arrangement announced on Wednesday, the central bank will buy dollar cash from the Ministry of Finance any time through to the end of March next year at the prevailing market exchange rate at the time.
It will be the first time the BOJ will buy dollars outright from the MOF, underscoring the central bank’s caution over the risk of renewed dollar-funding strains heading into the end of the year.
The move is “in preparation for smoother execution of the Bank of Japan’s operations, such as international financial cooperation and foreign currency supply to financial institutions,” the central bank said in the statement.
The decision will likely give the BOJ flexibility to address any dollar shortages that domestic financial institutions could face ahead of the year-end and the March closure of Japan’s fiscal year.
Japanese financial institutions have repeatedly faced dollar funding strains in times of market stress, though the BOJ’s dollar-funding operations have drawn little demand in recent months as market conditions remained stable.
The BOJ’s move comes ahead of its two-day rate review that concludes on Friday, when it is expected to extend the March 2021 deadlines of a range of measures aimed at easing corporate funding strains.
The BOJ eased policy in March and April mostly by ramping up asset purchases and creating a new facility to funnel funds via financial institutions to cash-strapped firms hit by COVID-19.
While the BOJ has kept policy steady since then, central bank officials have stressed their near-term focus would be to address any funding strains and ensure markets remains stable.
Reporting by Leika Kihara; Additional reporting by Takahiko Wada; Editing by Richard Pullin and Sam Holmes