
Dollar/yen basis blows out as leverage ratio bites US banks
Widening in the dollar/yen cross-currency basis is being blamed on regulation such as the Basel III leverage ratio which is decreasing the appetite of foreign banks to provide liquidity for cross-currency swaps

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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