Bloomberg

(Bloomberg) -- Global central banks sounded the alarm over the risks posed by a British departure from the European Union, as polls continued to show the “Leave” campaign ahead with a week to go before the June 23 referendum.

In a 15-hour relay of comments, the chiefs of the U.S. Federal Reserve the Bank of Japan, the Bank of Canada and the Swiss National Bank all cited the referendum on EU membership as being potentially disruptive to the global economy. Haruhiko Kuroda of the BOJ said in Tokyo on Thursday that central banks are in contact on a so-called Brexit, and that his institution can respond to any potential surge in dollar-funding costs.

“The Bank of Japan is closely exchanging opinions with the Bank of England and other central banks,” he told reporters. “We want to coordinate closely with domestic and overseas authorities and carefully watch how the vote will affect the international financial market and the global economy, including Japan.”

With almost all recent polls showing “Leave” in the lead, investors are focused on how financial guardians at the Fed, European Central Bank and BOJ can stem market panic if the U.K. takes such a step. Officials stress that liquidity facilities left over from the crisis era are available, and central bankers in countries like Switzerland and Denmark say they’re ready to act to stabilize their currencies.

Turbulence Possible

“There is an intensive exchange of information between central banks in order to be informed about market developments,” SNB President Thomas Jordan told journalists in Bern. “We expect that, in case of Brexit, certain turbulence could arise.”

In the first instance, officials could act in global markets to prevent any “exaggerations,” Jordan said. ECB Governing Council member Ewald Nowotny said in Vienna on Thursday that swap agreements between central banks will ensure lenders have access to liquidity during any “disturbances on the market.”

“We’d expect major central banks to intervene to push back against this volatility,” Steven Barrow, a strategist at Standard Bank Group Ltd. in London, said in a note to clients. “Policy makers will feel they already have the tools in place to try to limit wider disruption.”

The most recent poll, by Ipsos Mori for the Evening Standard newspaper, found 53 percent of respondents will vote to leave, compared with 47 percent for "Remain," excluding those who didn’t yet know.

Black Hole

The "Leave" campaign argues that a transition out of the EU would be smooth, while "Remain" warns of dire economic consequences. Chancellor of the Exchequer George Osborne yesterday said a "black hole" in public finances would open due to reduced trade and investment.

“The result is on a knife-edge,” Morgan Stanley economists Jacob Nell and Melanie Baker wrote in a note to clients, raising their probability of a Leave vote to 45 percent from 30 percent. Still, they said they “expect a late swing in the polls to support an ultimate Remain victory.”

While his international colleagues readied for the fallout from a potential “Out” vote on June 23, Mark Carney fought back at accusations from Conservative Party supporters of an EU exit that the BOE hasn’t provided balanced analysis, and may seek to influence the discussion in its final days. The central bank released a letter from its governor to Bernard Jenkin after the lawmaker criticized his interventions.

Weaker Pound

Carney won backing for his stance from U.K. Prime Minister David Cameron on Thursday, who stressed the central bank’s independence.

The pound dropped toward a two month low ahead of the BOE’s final policy meeting before the vote. That decision is due at noon in London. A report on the U.K. from the International Monetary Fund will be released 12 hours later.

As the risks of Brexit mount, U.K. rate-cut expectations are on the up. Traders are pricing in a greater than 25 percent chance that the BOE will cut borrowing costs by its July meeting, according to data compiled by Bloomberg using swaps on the sterling overnight index average.

Carney’s U.S. counterpart Janet Yellen said Wednesday that concern over a possible Brexit played a part in the Federal Reserve’s decision to hold off from raising rates. Japan’s central bank refrained Thursday from adding stimulus even as it weakened its outlook for inflation. Global equities have lost more than $2 trillion over the past week.

Yield Plunge

“It is a decision that could have consequences for economic and financial conditions in global financial markets,” the Fed chair said during a press conference.

Kuroda, asked by reporters about the 10-year Japanese government bond yield reaching minus 0.2 percent, blamed the U.K. referendum, saying that while BOJ easing had contributed to a longer-term decline, Brexit was “behind the recent plunge.”

“That’s making international financial markets somewhat unstable, spreading the impact to the JGB market as well as the German sovereign-debt market,” he said.

The vote “poses new risks at the global level that could mean a shift in view,” Bank of Canada Governor Stephen Poloz said in a speech. He later told reporters that “we are standing ready,” and markets will likely react no matter what the outcome is.

Safe Haven

The SNB, which oversees a currency popular with safe-haven investors, pledged to intervene in the foreign exchange market if needed to cap franc gains. The Swiss currency has appreciated more than 2 percent this month and hit a 2016 high against the euro on Tuesday.

“The imminent U.K. referendum on whether to stay in the European Union has already caused volatility on the financial markets to rise,” Jordan said. “Uncertainty emanating from political events could escalate, hampering economic development.”

He noted the SNB’s 24-hour operation -- which includes a trading desk in Singapore. Board member Andrea Maechler, in charge of markets, said her staff will be “ready to react” on the night of June 23.

“We will have a full team that will be following developments as they unfold,” she said.

--With assistance from Svenja O'Donnell Robert Hutton Thomas Penny Catherine Bosley Brian Swint Christopher Anstey Alice Baghdjian Toru Fujioka Yoshiaki Nohara and Alexander Weber To contact the reporters on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net, Matthew Campbell in London at mcampbell39@bloomberg.net. To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Craig Stirling

©2016 Bloomberg L.P.

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