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Recent Trends in Cross-currency Basis

Listed author(s):
  • Fumihiko Arai

    (Bank of Japan)

  • Yoshibumi Makabe

    (Bank of Japan)

  • Yasunori Okawara

    (Bank of Japan)

  • Teppei Nagano

    (Bank of Japan)

Registered author(s):

    The cross-currency basis, which is the basis spread added mainly to the U.S. dollar London Interbank Offered Rate (USD LIBOR) when the USD is funded via foreign exchange (FX) swaps using the Japanese yen or the euro as a funding currency, has been widening globally since the beginning of 2014. This development is driven by (1) increased demands for U.S. dollars resulting from a divergence in the monetary policy between the U.S. and other advanced countries, (2) global banks' reduced appetite for market-making and arbitrage due to regulatory reforms, and (3) the decrease in the supply of U.S. dollars from foreign reserve managers/sovereign wealth funds against the background of declines in commodity prices and emerging currency depreciations.

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    File URL: http://www.boj.or.jp/en/research/wps_rev/rev_2016/data/rev16e07.pdf
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    Paper provided by Bank of Japan in its series Bank of Japan Review Series with number 16-E-7.

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    Date of creation: 09 Sep 2016
    Handle: RePEc:boj:bojrev:rev16e07
    Contact details of provider: Web page: http://www.boj.or.jp/
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