As coronavirus broke out of China in February, many major central banks across the globe panicked and threw the kitchen sink altogether, trying to salvage their economies. Trillions of dollars have been thrown in the markets and their help is working, although the end of the lockdown is doing most of the work. But now they are dialing back the bond purchases, following the earlier moves by the FED, the ECB, SNB, and BOE. The Bank of Japan (BOJ) announced that it is taking a step back earlier today.
Bank of Japan Announcement
- One-week funding operations now three times a week from daily
- Three-month operations will continue at once per week
Major central banks are slowly paring back on the need for dollar funding as the market is seemingly more stable now. In any case, a lot of these operations haven’t been fully utilized as of late as dollar liquidity has been sufficient.
But again, as they are slowly weaned off the market, it will be interesting to see the response in the event we do see incidents similar to that of March. That said, the central banks also reaffirm that they stand ready to readjust the frequency of these operations depending on market conditions.