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Friday, Sept. 19, 2008

BOJ joins dollar-swap deal


Staff writer

The Bank of Japan and four other central banks Thursday agreed to a $180 billion swap deal with the U.S. Federal Reserve to pump dollars into short-term money markets and ease the global credit crunch.

The BOJ agreed to a dollar swap of up to $60 billion with the Fed. This will be the first time the BOJ has pumped dollars into the domestic market.

The BOJ plans to start supplying dollars by the end of the month through open market operations. The deal will stay in effect through Jan. 30.

The four other central banks taking part in the coordinated action are the European Central Bank, the Bank of England, the Bank of Canada and the Swiss National Bank.

The global credit crunch has made it difficult for banks and companies in the United States and Europe to procure capital, but the bankruptcy of Lehman Brothers Holdings Inc. earlier this week turned the situation into a full-blown crisis as banks clamp down on lending to ensure their survival amid all the uncertainty.

"If we do not take any action, the global market will be unstable," BOJ Gov. Masaaki Shirakawa said in a hastily arranged press conference. "(This move) will help stabilize the dollar."

Thursday's dollar swap agreement will allow the BOJ to supply the world's reserve currency of choice to foreign banks and brokerages via the Japanese market, Shirakawa said.

"I'm not concerned about the foreign currency cash flows of Japanese banks," Shirakawa told the news conference, hinting at the foreign banks in distress.

The BOJ will start providing dollars locally by the end of the month.

Pressure on the short-term money market has been building, and the shortage of dollar liquidity may affect the Japanese currency market if no action is taken, Shirakawa said.

The BOJ held an emergency Policy Board meeting Thursday afternoon to give the green light to the agreement.

Under the deal, the BOJ will swap $60 billion worth of yen with the Fed and loan it to financial organizations operating in Japan. Those institutions in turn will need to offer collateral in yen-denominated bonds, such as Japanese government bonds.

A total of 55 domestic and foreign financial institutions will be eligible to borrow dollars.

The BOJ and the Fed will reswap the currencies after the deal expires.

Economic and fiscal policy minister Kaoru Yosano praised the move as a "timely and right decision."

Finance Minister Bunmei Ibuki agreed.

"It means the world has worked to defend the international currency of the dollar," Ibuki said.



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