The Bank of Japan supplied dollars in market operations for the second straight week on Tuesday, continuing the rare move as jitters remained on Europe's sovereign debt crisis, though the amount was much lower than the week before.
The central bank supplied $1 million in an operation maturing in a week, compared with the $102 million it provided in two operations last week, in a sign market tension has eased somewhat after Greece avoided a showdown over the EU's rescue plan. $1 million is the minimum the BOJ can supply under its fixed-rate dollar operation.
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The scheme, under which the BOJ offers unlimited amounts against collateral, had been untapped for more than a year because it usually costs more than borrowing dollars in the open market.
But dollar-funding costs rose in Japan due to the intensifying euro zone debt crisis following a surprise Greek call for a referendum on the bailout plan, making it cheaper for banks to raise dollars under the BOJ's operation.
Dollar-funding costs in markets have come down since last week to below rates offered by the BOJ but a Japanese bank likely sought dollars in Tuesday's operation to ensure access to stable funding, a market source said. (Reporting by Yoshifumi Takemoto, Writing by Rie Ishiguro; Editing by Joseph Radford)