Japan and Malaysia sign a third bilateral swap of up to $6 billion
Victoria Shinder2 min readJapan and Malaysia have signed their third Bilateral Swap Arrangement, the Bank of Japan announced on 15 September. The arrangement allows swaps of up to 6 billion US dollars, or the equivalent in Japanese yen, and took effect on 18 September.
The mechanics are set out in the announcement. The Bank of Japan signed on behalf of Japan's Minister of Finance, as the ministry's agent, with Bank Negara Malaysia as the counterparty. Both sides can exchange their own currencies for US dollars under the arrangement, and Bank Negara Malaysia can additionally exchange Malaysian ringgit for Japanese yen. The two countries say the arrangement will deepen financial cooperation and support regional financial stability.
Arrangements of this kind are a standing line rather than a loan. Nothing is drawn unless one side asks for it, and the swap is designed for a period when a country's banks or companies struggle to obtain dollars in the market, for example during regional stress. Signing in advance means the terms are settled before they are needed, which is the point: a backstop that has to be negotiated during a crisis arrives too late.
What it means
For the yen, the notable detail is the second leg. Most of Asia's financial safety net runs in dollars, because that is the currency borrowers most often lack. Allowing Malaysia to draw yen as well reflects the trade and investment ties in which the yen is used, and gives Japan's currency a small, formal role as a liquidity currency in the region.
The size is modest against the scale of Asian dollar funding, and a swap line is a signal as much as a resource: it tells markets that two central banks have agreed in advance to help each other. It is the kind of arrangement that matters only on the day it is used, and is valuable precisely because that day is unpredictable.