Bank of Japan Announces Interest Rates Cut
By Martin Fackler
Associated Press Writer
Friday, February 12, 1999; 7:46 a.m. EST
TOKYO (AP) -- Japan's central bank said today
it will 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 to lower
the target for overnight call money -- the rate
banks charge each other for overnight loans
without collateral -- from 0.25 percent to 0.15
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 also for companies and
individuals.
Speaking 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 markets closed 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 spending rebound would 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 that 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.
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 even 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.
Today's decision does not affect the discount rate -- the central bank's
charge on loans to banks -- which is at a record low of 0.5 percent.
© Copyright 1999 The Associated Press
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