Asia's major central banks, the People's Bank of China (PBoC) and Bank of Japan (BOJ), look to be headed in opposite policy directions judging by their recent moves, say strategists.
The PBoC unexpectedly drained 48 billion yuan ($7.9 billion) from money markets on Tuesday following a boom in lending at the start of the year.
"The PBoC's decision to drain liquidity using repos is a reminder that the tightening bias remains in place and the desire to curb credit growth remains intact. As such, this should be seen as a commitment to allow the on-going slow and steady slowdown of the Chinese economy to continue," Kit Juckes, head of foreign exchange research at Soicete Generale wrote in a note titled 'BOJ mini-ease, PBoC mini-squeeze.'
The central bank withdrew the liquidity by issuing cash-draining forward bond repurchase agreements. It was the first time in eight months that forward repos were used to drain liquidity from the money market.