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Japanese banks paying most for dollars since 2008

With rate gap set to widen, deposits and bonds can soften the blow

Japanese financial institutions paid a premium of nearly 2% in annualized terms to buy dollars with yen at the end of November.   © Reuters

TOKYO -- Expectations of a rise in U.S. interest rates have pushed the cost of buying dollars with yen to a nine-year high, a potential blow to Japanese banks seeking more business abroad as ultra-low rates squeeze domestic returns.

Japanese financial institutions must procure dollars when lending to American companies or investing in U.S. debt. Swapping yen for greenbacks cost an annualized 1.972% above market rates at the end of November, according to Yuuki Fukumoto of the NLI Research Institute. This is the highest since September 2008, when the global financial crisis sparked a scramble for dollars that sent the premium as high as 5.396%.

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