Japan Cuts [already negative] Interest Rates
[Given Japan's deflation rate, the real rate of interest on
Japanese short-term money is actually negative. In effect,
Japan is paying borrowers to borrow money. But, what private
for-profit institution would want to lend under such
circumstances? -- RR]
Japan Cuts Interest Rates
By MARTIN FACKLER=
Associated Press Writer=
TOKYO (AP) _ Japan's central bank cut the country's
already
record-low interest rates even further in an effort to end a
stubborn recession.
The Bank of Japan's policy board voted today to lower
the target
for overnight call money _ the rate banks charge each other for
overnight loans without collateral _ to 0.15 percent from 0.25
percent.
By cutting the target, which is a benchmark for rates
of
interest on other types of loans, the central bank hopes to
lower borrowing costs not only for banks but for companies and
individuals.
Speaking at a news conference after the move was
announced, Bank
of Japan Gov. Masaru Hayami said the cut will ''without a
doubt'' give a boost to corporate borrowing.
The new rate, announced after the close of markets in
Tokyo, is
the lowest ever in Japan.
By making it cheaper to borrow, the central bank said
it was
hoping to spur business activity as the economy continues to
show few signs of recovering on its own.
A rebound in spending could also drive up prices _
something the
bank seeks as it tries to pull the economy back from the brink
of a destructive deflationary spiral.
The move is also aimed at combating a recent rise in
long-term
interest rates, the bank said.
Yields on the benchmark 10-year Japanese government
bond have
surged to more than 2 percent from lows of near 0.7 percent late
last year, driven by concerns about Tokyo's ballooning budget
deficits. Today, the yield on the No. 210 government bond closed
at 2.080 percent.
The increases have sent stock prices tumbling in
recent sessions
as investors fretted the higher cost of borrowing could mortally
wound an economy already battling its worst recession since
World War II.
''I'm hoping that even if it is indirect (the latest
steps) will
have the effect of pulling down long-term interest rates,''
Hayami said.
When asked about the cut, Prime Minister Keizo Obuchi
told
reporters he wants the central bank to consider additional steps
to cap long-term rates.
The rate cut _ the second since September _ also
highlighted how
few options the Japanese government has left for reviving the
economy.
Key short-term interest rates now stand at close to
zero
percent, leaving little room for further cuts.
Meanwhile, successive stimulus spending packages have
driven
Japan's cumulative national debt to close to 110 percent of the
gross domestic product _ the highest ratio in the industrial
world.
In response, a few Japanese economists and officials
have begun
calling on the Bank of Japan to take the highly unorthodox step
of intentionally sparking inflation by freely printing new
money.
Hayami has so far brushed aside such suggestions.
Friday's decision does not affect the discount rate,
which is at
a record low of 0.5 percent. The discount rate is the central
bank's charge on loans to banks. |
