On Thursday, 02 April 2020, BOJ announced that effective Monday 06 April, 2020, it was prematurely terminating its 19 March 2020 offer to purchase GOJ instruments and redeem BOJ instruments early. Offers were accepted up to Friday, 03 April, 2020. #BOJSpeaks #FinanceTwitterJa

2. The offer was originally extended until 30 June 2020.

3. When an offer in financial markets is closed early, it is usually a safe assumption that it was tremendously successful, so much so that there is no point in allowing it to run its previously intended course. In this case, that assumption would be correct.

4. From this operation alone, up to that point, BOJ had already injected J$41 billion into the financial system, more than the total of all the other operations combined, which at that point stood at J$27 billion, for a total of J$68 billion.

5. Pre COVID19, average - and adequate - liquidity in the system was about J$34.6 billion. That average has been about J$53.6 billion since the onset of BOJ COVID19 liquidity measures, and the total stood at J$74.4 billion on 07 April 2020.

6. Especially In the face of any crisis that can influence consumer behaviour and make fears or false perceptions real, psychology is important in financial markets.

7. This is why, even though Jamaica’s financial sector is very strong, in good shape, and although there was never any shortage of liquidity, it was still important for BOJ to literally ‘put its money where its mouth is’ and pre-emptively put a raft of measures in place…

8…to send a very strong signal to the public that if the COVID19 crisis causes financial strain, access to funds will be the one thing people and businesses will not have to worry about, even if the banks face increased demand.

9. In football, when almost the entire team remains deep to protect the goal, it is called “parking the bus.” In a similar manner, in response to COVID19, BOJ has parked its money truck beside the banking system.

10. Pulling back early on this particular liquidity injection measure now is yet another signal to the market and the public that the market is now so awash with liquidity that BOJ now has to be mindful not to drown it.

11. With rather fortuitous timing, while all this was happening, Jamaica’s Financial System Stability Committee (“FSSC”), after reviewing BOJ’s 2019 Financial Stability Report, issued a timely statement on 01 April 2020.

12. The FSSC said that “The data and analysis presented in the report showed that Jamaica’s financial system remained sound and stable. Both deposit-taking institutions and non-deposit-taking financial institutions were well-capitalized and profitable.”

13. The COVID19 crisis is still not over, however, so even with this strong show of confidence, BOJ is careful to note that ALL the other J$ and US$ liquidity measures recently announced remain in place, and more is in store if ever needed.

14. On the J$ side, these measures include the removal of penalties on BOJ’s overnight lending facility, the Standing Liquidity Facility (SLF), the re-introduction of a 6-month lending facility, plus the continued operation of the regular weekly J$ auction for 2-week financing.

15. BOJ's liquidity management remains a balancing act, however, calling for constant monitoring ( just a regular day in the life of the Market Operations Department) as it simultaneously manages both US$ and J$ liquidity.

16. How are the two connected? One way of increasing US$ liquidity is to sell directly to the market - operative word, 'sell,' - as US$ funds are sold for J$, which means J$ are being pulled from the system and instantly become part of the computation of J$ liquidity levels.

17. Trading volumes in the FX market have predictably declined since the onset of the international COVID19 shutdown, with reduced inflows on one hand while reduced economic activity results in less demand on the other.

18. FX earners, in the face of reduced inflows and in preparation for eventual recovery, will, logically, also be less inclined to sell at this time.

19. During this abnormal period, a mismatch of supply and demand on any given day is a bit more likely, so as we did on Wednesday, BOJ stands ready to intervene directly if conditions warrant, but we will do so only to meet FX demand to purchase goods and services abroad.

20. This, of course, is in addition to the other US$ liquidity measures already put in place to support the banking sector, including an FX swap arrangement and the increase of the FXNOP limit.

21. While we all cooperate to “flatten the curve” of COVID19 to minimize damage and speed recovery, BOJ continues to carefully monitor market conditions, financial system stability and inflation trends to help minimize the systemic economic contagion of this health crisis.

22. Stay safe!