BOJ's 1st dollar-fund supply auction meets weak demand

TOKYO, Sept. 25 Kyodo - The Bank of Japan's first-ever dollar-fund supply operation has met with
sluggish demand with bids for money undershooting the amount the central bank
had expected to provide, results released Thursday showed.
The BOJ had planned to lend a total of $30 billion against certain collateral
for one month in an auction conducted Wednesday in line with coordinated
emergency action by six major central banks to ease the pressure on global
financial markets. In all, $29.62 billion worth of bids were received.
Separately, the BOJ injected 1 trillion yen ($9.46 billion) into the Tokyo
money market Thursday. The liquidity-boosting operation for the seventh
consecutive business day brought the total amount the bank has pumped in to 15
trillion yen.
The dollar-fund supply operation was conducted amid the crisis unleashed by the
bankruptcy earlier this month of major U.S. securities house Lehman Brothers
Holdings Inc, which has pushed the cost of borrowing dollars in interbank
markets sharply higher as lenders have become skeptical about the financial
health of counterparties and cautious about extending fresh loans.
It is the first time that the BOJ has supplied dollar funds to financial
institutions participating in the Tokyo money market.
Some market participants said the sluggish demand was due to insufficient time
for financial institutions to prepare for bidding.
The auction came one week after the U.S. Federal Reserve announced Sept. 18
that it would supply its peers in Japan, the eurozone, Britain, Switzerland and
Canada a total of $180 billion through a currency swap deal to lend to local
banks unable to access onshore dollar-lending facilities.
For its part, the BOJ has entered into a $60 billion money swap deal with the
Federal Reserve Bank of New York.
The Japanese central bank is also planning similar auctions in October and
November.
A BOJ official said demand for dollar funds is expected to grow between late
this year and early next year as companies wrap up business for the year.