ID :
27367
Thu, 10/30/2008 - 10:57
Auther :
Shortlink :
https://oananews.org//node/27367
The shortlink copeid
BOJ considering further credit easing, including rate cut
TOKYO, Oct. 29 Kyodo - The Bank of Japan is considering additional credit easing measures, including a possible interest rate cut, in an attempt to prop up the country's flagging economy amid the fallout from the global financial turmoil, sources close to the matter said Wednesday.
The central bank has specifically studied two options -- a 0.25 percentage
point cut in its main lending rate from the current 0.50 percent and an
additional liquidity provision into money markets while holding the rate
steady, the sources said.
The BOJ is to decide on what action to take in a monetary policy meeting on
Friday.
The bank's credit easing measures may come in harmonization with similar moves
abroad.
The BOJ appears to be under growing pressure to cut interest rates in order to
prevent the yen's further appreciation against the U.S. dollar, the euro and
other major currencies.
As the global credit crisis has deepened, market participants increasingly
speculate that the U.S. Federal Reserve and the European Central Bank will
lower their benchmark interest rates, respectively, on Wednesday and Nov. 6.
Market participants reacted to media reports of the BOJ's possible credit
easing with the dollar recouping lost ground against the Japanese currency,
trading at 96.85-86 yen at 5 p.m. in Tokyo, compared with 94.54-56 yen late
Tuesday.
In the interbank-borrowing market, the weighted average of overnight call money
rates temporarily dropped to 0.20 percent, well below the BOJ's official target
of 0.50 percent. It ended the day at 0.43 percent as the bank drained 500
billion yen in liquidity from the short-term funding market.
Traders said the market has almost factored in a 0.25 percentage point rate cut
by the BOJ.
Tokyo stocks continued a rally with the key Nikkei index closing more than 7
percent higher at 8,211.90 on Wednesday.
The Japanese government will announce its additional economic stimulus package
on Thursday.
Chief Cabinet Secretary Takeo Kawamura welcomed the central bank's move toward
relaxing the credit grip. An action by the central bank of Japan, where the
financial system remains relatively stable, ''would signify an important
message not only to the domestic markets but also to international markets,''
he said at a press conference.
The BOJ's interest rate cut would be the first since March 2001, when the bank
introduced the ''quantitative easing'' policy, under which the central bank
flooded the financial system with ample liquidity in order to drive the
interest rate for unsecured overnight call money to near zero.
The BOJ ended the ultra-loose monetary policy in March 2006 before raising the
benchmark rate to 0.25 percent in July that year and to 0.50 percent in
February last year.
However, the BOJ has yet to finalize any decision, said the sources.
While some of its executives repeatedly stress that Japan's credit conditions
have been sufficiently ''accommodating'' with the key borrowing cost of 0.50
percent, many experts say cutting the already low rate will have only a limited
impact in terms of propping up the economy.
Therefore, the BOJ has been studying another measure in order to get through
the current crisis without lowering interest rates, according to the sources.
They say the BOJ may pay interest on reserves that commercial banks are
required to deposit at the central bank, in an unusual move designed to prevent
the key interest rate from falling unnecessarily.
Paying interest on the current account reserves, which usually earn no
interest, is believed to encourage banks to park excess cash at the BOJ,
instead of investing it in money markets at lower rates.
While injecting ample liquidity into the overnight borrowing market to quell
the tension caused by the global financial turmoil, the BOJ has been concerned
that the move may push the key short-term interest rate below its official
target of around 0.5 percent.
The planned interest payment will set a de facto lower limit for rates in the
interbank call money market.
The U.S. Federal Reserve has employed a similar measure.
The central bank has specifically studied two options -- a 0.25 percentage
point cut in its main lending rate from the current 0.50 percent and an
additional liquidity provision into money markets while holding the rate
steady, the sources said.
The BOJ is to decide on what action to take in a monetary policy meeting on
Friday.
The bank's credit easing measures may come in harmonization with similar moves
abroad.
The BOJ appears to be under growing pressure to cut interest rates in order to
prevent the yen's further appreciation against the U.S. dollar, the euro and
other major currencies.
As the global credit crisis has deepened, market participants increasingly
speculate that the U.S. Federal Reserve and the European Central Bank will
lower their benchmark interest rates, respectively, on Wednesday and Nov. 6.
Market participants reacted to media reports of the BOJ's possible credit
easing with the dollar recouping lost ground against the Japanese currency,
trading at 96.85-86 yen at 5 p.m. in Tokyo, compared with 94.54-56 yen late
Tuesday.
In the interbank-borrowing market, the weighted average of overnight call money
rates temporarily dropped to 0.20 percent, well below the BOJ's official target
of 0.50 percent. It ended the day at 0.43 percent as the bank drained 500
billion yen in liquidity from the short-term funding market.
Traders said the market has almost factored in a 0.25 percentage point rate cut
by the BOJ.
Tokyo stocks continued a rally with the key Nikkei index closing more than 7
percent higher at 8,211.90 on Wednesday.
The Japanese government will announce its additional economic stimulus package
on Thursday.
Chief Cabinet Secretary Takeo Kawamura welcomed the central bank's move toward
relaxing the credit grip. An action by the central bank of Japan, where the
financial system remains relatively stable, ''would signify an important
message not only to the domestic markets but also to international markets,''
he said at a press conference.
The BOJ's interest rate cut would be the first since March 2001, when the bank
introduced the ''quantitative easing'' policy, under which the central bank
flooded the financial system with ample liquidity in order to drive the
interest rate for unsecured overnight call money to near zero.
The BOJ ended the ultra-loose monetary policy in March 2006 before raising the
benchmark rate to 0.25 percent in July that year and to 0.50 percent in
February last year.
However, the BOJ has yet to finalize any decision, said the sources.
While some of its executives repeatedly stress that Japan's credit conditions
have been sufficiently ''accommodating'' with the key borrowing cost of 0.50
percent, many experts say cutting the already low rate will have only a limited
impact in terms of propping up the economy.
Therefore, the BOJ has been studying another measure in order to get through
the current crisis without lowering interest rates, according to the sources.
They say the BOJ may pay interest on reserves that commercial banks are
required to deposit at the central bank, in an unusual move designed to prevent
the key interest rate from falling unnecessarily.
Paying interest on the current account reserves, which usually earn no
interest, is believed to encourage banks to park excess cash at the BOJ,
instead of investing it in money markets at lower rates.
While injecting ample liquidity into the overnight borrowing market to quell
the tension caused by the global financial turmoil, the BOJ has been concerned
that the move may push the key short-term interest rate below its official
target of around 0.5 percent.
The planned interest payment will set a de facto lower limit for rates in the
interbank call money market.
The U.S. Federal Reserve has employed a similar measure.
