BOJ to Supply USD Funds Amid Rising Dollar Scarcity

The Bank of Japan (BOJ) announced on July 15, 2025, that it would begin supplying U.S. dollar funds against pooled collateral starting from July 17. This move, while appearing to be a routine liquidity management action, has sparked discussions about its potential implications for the global financial system.

Macro analyst EndGame Macro suggests that this technical maneuver could indicate a deeper shift in the global dollar funding ecosystem. The analyst points out that Japanese institutions have long benefited from USD carry trades, borrowing cheaply in yen to invest in higher-yielding U.S. assets while hedging currency risks. However, the current environment, characterized by high Fed rates and a slumping yen, is making these trades increasingly costly and risky.

As the cost and risk of rolling over these trades escalate, Japanese firms are facing mounting pressure. The BOJ’s decision to supply domestic USD liquidity is seen as a preemptive measure to address potential future crises rather than a response to an immediate emergency. This action highlights a broader issue of dollar scarcity, where major central banks intervene to provide USD locally, signaling that private markets are struggling to allocate dollars efficiently.

Historically, similar interventions have occurred during periods of significant financial stress, such as in 2008, 2011, 2019, and 2020, leading to repo market ruptures and emergency Fed interventions. Arthur Hayes, former CEO of BitMEX, commented that such central bank actions bolster global liquidity, which could have significant implications for various asset classes, including cryptocurrencies.

The BOJ’s recent rate hike to 0.5%, the highest since 2008, has sent shockwaves through both Japanese and international markets. This move, prompted by persistent inflation above 3%, has put pressure on previously steady carry trades and heightened volatility across assets. Higher Japanese rates narrow the profitability of borrowing in yen to invest overseas, potentially leading to rapid capital flight from risk assets, including cryptocurrencies, and increasing global volatility.

When the dollar becomes more expensive and less available globally, riskier assets like Bitcoin often face pressure, with price surges or sudden downturns as liquidity dynamics shift. However, if central banks, including the Fed and BOJ, coordinate or expand liquidity through measures like swap lines or renewed quantitative easing, risk assets like crypto can rebound sharply. EndGame Macro states that quiet moves like the BOJ’s recent actions are often the first signs of deeper systemic changes.