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To: c.hinton who wrote (39698)	5/29/2006 12:46:03 AM
From: c.hinton	Respond to of 109011

BOJ Injects Funds Again to Stem Rate Jump E-MailPrint Save By REUTERS Published: May 28, 2006 Filed at 10:36 p.m. ET Skip to next paragraph TOKYO (Reuters) - The Bank of Japan injected funds into the banking system on Monday for same-day settlement, the second time in three sessions the central bank has used the rare operation to stem a jump in overnight rates. The BOJ is playing a balancing act between letting yields on interbank lending inch higher to stir activity in the long-dormant money market, but keeping them from jumping too high before it actually begins raising rates from virtually zero. The BOJ has pledged to keep overnight rates near zero while soaking up the ocean of cash it had pumped into the banking system under its super-loose ``quantitative easing'' policy that ended in March, which it had adopted to help beat deflation. The BOJ conducted a same-day fund-supplying operation, offering to buy 1.5 trillion yen ($13 billion) of bills in a repurchase agreement expiring on June 1. The injection comes after a similar operation on Thursday, which was the first since March 3, 2005. Money market traders said the BOJ's same-day funding operation had been expected but the volume was more generous than they had thought, as deals in the unsecured overnight call money market were done as high as the BOJ's official discount rate of 0.1 percent, further rising from around 0.08 percent on Friday. ``It was a much bolder move than the market expected,'' said a trader at a money market broker. ``As a result of the operation, bid rates are falling and the market seems to be stabilizing. I think the BOJ wants to take a wait and see stance for a while,'' the trader said. Tightening liquidity has pushed up money market yields from last week as the BOJ has slashed excess reserves in the banking system by some 19 trillion yen in less than two months to wind down its previous policy. Unsecured overnight call rate deals were centring on 0.07 percent after the operation, money traders said. The central bank has said it will keep the rate below the 0.1 percent discount rate as it drains excess reserves before raising overnight rates. Money dealers expect the BOJ to use same-day fund supplying operations in coming sessions to keep the key unsecured overnight call rate from overshooting as the market braces for huge fund shortages throughout the week, including on Tuesday and Friday. After the same-day funding operation on Monday, banks' current account deposits parked at the central bank were expected to rise to 13.9 trillion yen, up from Friday's 12.4 trillion yen. The pace of decline in the current account balances have slowed since last week as market rates started to rise sharply. More Articles in Business »