Nikkei: Crimped market ever reliant on BOJ lending government bonds

Editor’s Note: the collateral squeeze comes to Japan courtesy of the Bank of Japan.

TOKYO — Unable to find the government bonds they need on the market, Japanese financial institutions are relying on the costly measure of borrowing from the Bank of Japan for days on end, underscoring the strain caused by the bank’s grip on the assets.

The BOJ has become the largest holder of Japanese government bonds, buying the securities in huge quantities as part of its monetary easing operations.

Through its securities lending facility, the central bank loans the bonds to financial institutions overnight in response to daily demand. The facility was created as a backup option for securities firms and banks when they failed to procure bonds on the market, but now borrowers are relying on the loans for days on end.

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