Dollar/yen basis blows out as leverage ratio bites US banks

Basis at its widest since European banks faced a global dollar funding squeeze in 2012

50% widening in cross-currency basis

Dealers are blaming the impact of the Basel III leverage ratio for the recent 50% widening in the dollar/yen cross-currency basis as a shortage of market-makers causes a supply and demand imbalance in the cross-currency swap market.

Japan banks have massively expanded their foreign asset holdings in recent years as they look overseas in search of yield pick-up: according to Barclays, the amount of foreign currency loans outstanding – the majority of which are US dollar – has doubled from less

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