Japanese rates in 'one-off' fall below zero Jan 24, 2003

["Gary Santos" <evs@xxxxxxxxxxx>]

Japanese rates in 'one-off' fall below zero
By Mariko Sanchanta in Tokyo
FT.com site; Jan 24, 2003


Japan ventured into uncharted territory on Friday as overnight call rates
fell below zero for the first time in the country's history.

The overnight call rate on Y15bn of funds traded between foreign banks fell
to minus 0.01 per cent. Because of the negative rate, borrowers are in
effect being paid for borrowing funds because they will have to pay back
less than they were lent.

With long-term interest rates already virtually nil under the Bank of
Japan's "quantitative easing" policy, bankers said on Friday the move into
negative territory was more a symbol of the country's decade-long economic
malaise rather than an indicator of future financial chaos.

The situation, said bankers, was likely to be a one-off and pointed out to
the relatively small size of the transaction.

Critics say that the BoJ's ongoing zero interest rate policy and it decision
to flood the market with liquidity has been ineffective in stimulating the
economy.

"In terms of monetary policy, the BoJ is not doing enough," said Hisashi
Sitow, director at Credit Suisse First Boston in Tokyo. "It has to buy more
JGBs or foreign bonds to affect the market. Monetary policy is clearly
ineffective, as base money is increasing but growth in the money supply is
stagnant."

Current record low yields on Japanese government bonds indicate that
investors are not betting on an economic rebound anytime soon. The 10-year
JGB has been skirting new four-year lows for some weeks, while the yield on
the five-year bond fell to a record low on Friday.

"This is all part and parcel of a growing loss of faith in Japan's future,"
said Marshall Gittler, strategist at Deutsche Bank in Tokyo. "JGB movements
are telling a story that deflation is set to continue indefinitely."