Escape From Negative Japan Rates Wrecked by Record Hedging CostsBy
Swap premium for yen holders reaches record 102.5 basis points
Basis swap jump `is an extremely serious problem,’ says Mizuho
The Bank of Japan’s negative interest rate policy is making it more expensive for domestic banks to hedge dollar investments, threatening to slow their escape from negative rates into U.S. currency debt.
When securing dollar funds for overseas investments, Japanese financial institutions often use trades that involve swapping greenback and yen interest rates, instead of taking on exchange rate risk by trading currencies. The premium for yen holders to borrow dollars for five years reached a record 102.5 basis points last week, and was 98 on Wednesday…
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