Fed Opens New FX Swap Line With Bank Of Japan; Second After ECB

Tyler Durden's picture

Today, for the first time in months, the New York Fed disclosed that in addition to its outstanding $1.9 billion in swap lines with the ECB, it had opened for the first time since the swap line reopening, two new USD liquidity lines with the Bank of Japan, a 7 day and an 83 day one, for 1.1%, or just modestly more than what the 7 Day Drawn line with the ECB costs. The combined is for $102 million which brings up two questions: how much longer will the BBA pretend its LIBOR quotations are even remotely useful: after all today, according to the daily bank matrix, the most expensive 3 Month unsecured USD loan in the interbank market was 0.575% (courtesy of Credit Agricole). Yet the BOJ had to borrow from the 100x levered FRBNY at double that? Amusing. And also, just what the hell is the BOJ doing: after all in the past week the bank supposedly bought over $200 billion worth of dollars (and sold Yen) in order to weaken its currency. Where did all this money go if the bank was forced to serve as a conduit for a meager $102 million. We are sure the explanations will be fast and furious, and none of them will be right.

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Belrev's picture

I don't understand why would any central bank even go into fx swap with other central bank to help their own country's financial institutions. They can just print local currency, buy fx and lend it to their own. Who can explain?

Sigma X's picture

Because they cant print dollars and they need them for loans they fund.  Unfortunately, as the primary source of these dollar loans dry up (primarily due to counterparty risk, collateral restrictions or an overall tightness in the repo world) theres no place to turn for their funding needs other than the Fed.  The fact that these banks dont have access to said markets is evident by the premium they pay over the corresponding LIBOR rate for the same term.

disabledvet's picture

basically the ability of the governments of Japan and "Europe" to fund their own needs has been tapped out and Uncle Sugar has to finance them now. Think USA circa the 1950's. HOWEVER! It's far bigger than that. In those decades we were financing rebuilding efforts for Japan and Europe. This time I would argue you have not only the bulk of Japanese industry but the bulk of Japan itself migrating to the USA (Fukushima and the "radioactive steam" event)...and something...similar but not identical happening in Europe (total collapse of their trading bloc leading true price wars of finished goods never before seen in human history...like say brand new S-Class Mercedes for 10 grand). In short you'd better be an owner of dollar denominated debt because all the rest of it could be worthless in a week.

piceridu's picture

Also FED Swap lines are used to continually weaken USD

MarketTruth's picture

WAIT!!!  You mean to tell me the USA is a currency manipulator? Color me SHOCKED, shocked i tell you!!!


maxw3st's picture

What did happen to those billions of dollars?

smlbizman's picture

i bet they put it in the "lockbox"

chump666's picture

Almost forgot about Asia's liquidity squeeze.

slewie the pi-rat's picture

i think they are trapped up a box canyon

they're gonna hafta shoot their way out

earleflorida's picture

wow! this is strange,...

thanks tyler

mynhair's picture

Crap, I applied for a line 2 months ago.   Where's mine?

Cleaned the mirror and everything....even stole a new straw!

Ecoman11's picture

Account sweeping.

DeadFred's picture

Maybe they used part of it to buy Italian bonds this morning

mynhair's picture

1)  Borrow $$$

2) Sell Yen

3) ....

4) Not #winning

phungus_mungus's picture

I'm longing can goods and shotguns!

mynhair's picture

USDHUF --> 234 buys a lot of spam.

Hmmmm, 234, where have I heard that before?

kito's picture

is this like swapping spit?

Caviar Emptor's picture

Fx swap lines are needed to keep the Ponzi dream alive. The stress on the system isn't all coming from Euro banks and weak sovs, it's also coming from a slowing global economy that can't support bubble credit and prices (China? You listening?)

DormRoom's picture

the EUR-USD  & USD-JPY are false signals.  Have been for a while.


Fed opens line so banks dont' need to go to currency markets.  Banks can get juiced by their directly from central banks. EUR & JPY should be a lot lower, since the USD should be a lot stronger, given the global uncertainty.  But since algos are hardwired to monitor currency exchange rates (global markets tank, if USD rises), Feds wants to make sure, there is no ghost in the machine moment.

chump666's picture

So an Asian liquidity squeeze is kicking in overtime. Last few weeks FX swaps between Japan/sth Korea/Taiwan/China and now the Fed.  means?  Asia is slowing down hard.  C'mon momo traders, sell your rallies, here is the equation EZ + China x liquidity crunch = FUBAR

Cplus's picture

In the past Japan's financial institutions derived dollar funding from the trade surplus. This fiscal year it is likely that there will be a trade deficit as a consequence of the spring disasters and other factors.. 

It is a new development for Japan's financial institutions without access to cheap dollar funding from the domestic trade surplus or foreign banks to call on the Central Bank for this purpose.

So this facility is just being pilot tested. The BOJ's intervention $ are sitting in Treasuries at the Fed for the time being and could easily be used for this in the future depending on a number of factors.

Freebird's picture

Exactly, & those Nips were the largest buyers of USTs this week. Round & round we go...smoke & mirrors

Caviar Emptor's picture

Nomura. The Soc Gen of Japan

Eireann go Brach's picture

Once again, I am absolutely fucking shocked that Bernanke or a Wall St CEO like Blankballs have not been beaten in public with a bat!

piceridu's picture

99.9999999999999999999999999% of the population aren't aware or awake. Next time you walk into your bank, grab all the tellers and bank manager and ask them where the money they loan comes from.

Coldfire's picture

Just imagine what the Fed isn't disclosing. And that's all you can do, just imagine, because information about what they do with our money and in our name is secret. The Fed's conspiracy with its primary stealers is a continuing criminal enterprise writ large. End the Fed.

midgetrannyporn's picture

The BOJ dropped a ton of yen on Uncle Mo last weekend at Churchill Downs. LMAO!

Mine Is Bigger's picture

Thank you Cplus.  You answered my question even before I ask.

catch edge ghost's picture

This reminds me, I have the solution to the bank problem. Let me grab that napikin...

Step 1: All bank ownership is reorganized as a daisy-chain of subsidiaries. At the top would be a special sort of Holding Company, it would own JPM maybe, who would own Citi who would own BofA who would own Wells etc. Someone can figurre out the best order to net the maximum accounting benefit from the consolidated returns.

Step 2: Each subsidiary borrows only from its immediate parent or from the Holding Company.

With enough subsidiaries and accounting, it would take several quarters if not years for losses to escape or percolate up to the ultimate parent. Same for taxes, decades could pass before anything but profits are realized. 

Share prices in each subsidiary would rocket creating a feedback loop on all of their balance sheets.  Within a year the market cap of the weakest link would easliy exceed 9000.

Outlaw Of The Wasteland's picture

what EXACTLY is a "dollar" again?

Freebird's picture

About one 1750th of a troy ounce

Freebird's picture

About one 1750th of a troy ounce

dr.charlemagne's picture

no, its 1/55,000th of a troy ounce. It just hasn't quite found its equilibrium yet.

anonnn's picture

Is the action so  misunderstood that the obvious is not seen?

Namely. the Fed is acting as 3rd party to effectively, via bailout "help", force the receiver of the handout into puppet-status.

By these acts, the ECB and BOJ are made submissive to any Fed [neocon, et al]  superior viewpoint,  i.e. parental authority. 

Classic corruption technique to dominate and make others less.