Japanese bank reserves surged in the wake of the 11 March earthquake / tsunami as the Bank of Japan supplied emergency funds and, later, intervened to suppress the yen. Some investors speculated that the tragedy had triggered a major policy shift and further Japanese liquidity injections would supercharge global markets already boosted by the Fed's QE2 largesse.
These expectations seemed hopeful at the time – see previous post – and the BoJ has duly disappointed. Reserves have fallen back as lending has normalised and f/x intervention has been sterilised. As of today, they were ¥10.7 trillion ($132 billion) below the late March peak and half-way back to the pre-earthquake level – see chart. The liquidity withdrawal is boosting the yen and has probably contributed to recent commodity price weakness.
