C. Nowell,
Twice now you've referred to Japanese banks having to curtail lending due to a rising dollar because they have to increase reserves. I'm a little confused by this. I understood that banks deal in the currency of the country they are in, except for settlements. Japanese banks are making yen loans on yen deposits, not dollar loans on dollar deposits, aren't they? Japanese banks usually raise foreign currency through bank-to-bank borrowing, the forex market and loan swaps. Forex requires no foreign currency reserves and swapped loans use local currency as collateral for foreign currencies. Obviously every bank has to have foreign currency reserves as part of its settlements portfolio, but since they are lending in local currency (except as part of forex activities) how much of a difference can this make? Also, the reserve requirements of Japanese banks are not very well monitored even, apparently, by the Bank for International Settlements (if the BOJ Governor's recent remarks are any evidence).
Even in the current rising yen environment, the Japan premium has been rising and Japanese banks have been hard-pressed to find takers for swaps. In fact, the BOJ has been lending out its foreign currency reserves to Japanese banks directly.
peace