In A Rare Move, Bank of Japan Issues Market Warnings by Supplying Dollars

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The exposure of banks to the Euro zone debt crisis has raised fears of a new credit crunch due to dollar funding, which has become increasingly tight in global money markets. InvestTechFX reports that global market strains could push the Yen even higher.

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For the first time in more than a year, the Bank of Japan supplied dollars in market operations, according to online Forex Ecn experts at InvestTechFX, which indicates that global market strains could push the Yen higher again. The exposure of banks to the Euro zone debt crisis has raised fears of a new credit crunch due to which dollar funding has become increasingly tight in global money markets.

With Japan’s money markets being largely stable and Bank of Japan's operations to supply unlimited amounts of dollars since July 2010, it was immune to these concerns. The central bank recently supplied $2 million for a week in one operation and $100 million in a second operation for three months. Online Forex operators at the company InvestTechFX speculated that a non-Japanese bank with operations in the country wanted the money to secure their funds for the end of the year.

Some banks are expected to rely on funding from central banks with a widening in money market rates due to Europe's debt woes. The current debt crisis has made it cheaper for banks to raise dollars under the Bank of Japan’s fixed-rate dollar operation that rarely draws bids because it usually costs more than borrowing dollars in the open market, though it offers unlimited amounts of dollars against collateral.

The Yen rose to a fresh record high against the dollar and sold heavily this week due to the euro zone debt crisis that poses risks to Japan's economy and it is likely that global market will remain under intense strain with Europe's debt problems not getting resolved anytime soon. After EU leaders drew up the measures, stock-gains made last week have been wiped out in a relief rally as Japan is in the process of stepping up monetary easing.

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