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To: Alias Shrugged who wrote (5195)	11/8/1998 1:55:00 PM
From: Lucretius	Read Replies (1) \| Respond to of 14427

Don't know if foreign banks are asking to be paid for deposits (I seriously doubt it), but I (and the rest of the planet (ggg)) are talking about Jap treasuries.... read: Rates Fall Below Zero In Japan Investors Seek Safe Government T-Bills By Paul Blustein Washington Post Staff Writer Saturday, November 7, 1998; Page H01 In the wackiest manifestation to date of Japan's economic woes, the country's super-low interest rates have fallen below zero on certain types of borrowing. The yield on some six-month Japanese government treasury bills fell for a while Thursday to minus 0.005 percent, according to bond traders and news reports from Tokyo. In effect, that means people buying those bills were willing to pay the Japanese government a small fee to hold their money -- because they didn't want to take the risk of depositing it in one of Japan's troubled banks, even though the bank would have paid them a small amount of interest. To make matters even crazier, some of those investors apparently were willing to accept negative yields, because Japanese banks were lending them yen at even lower negative interest rates. It all adds up to a new low for a once-mighty economy that has fallen into a historic slump since its inflated property and stock market "bubble" burst in the early 1990s, leaving Japanese banks saddled with hundreds of billions of dollars in loans that couldn't be repaid. Japan's interest rates were already at rock bottom. To revive economic growth the Bank of Japan, the nation's central bank, had lowered the benchmark interest rate to 0.5 percent and the overnight lending rate that banks charge each other to about 0.25 percent. But the economy has failed to respond, in part because banks are so loaded with bad loans that they are reluctant to extend new credit at any rate. What is happening now is a phenomenon rarely seen in credit markets: Below-zero returns are materializing as investors and lenders scramble to find safe places to park their money. Although slightly negative rates do not necessarily mean the economy will worsen dramatically, they stem from fears that it might. "It reflects the problems in the Japanese banking system," said Jeff Bahrenburg, a global strategist at Merrill Lynch & Co. in New York. "The government has put forward a plan for rehabilitating the banks, but there are a lot of questions about how well it will be implemented, and it falls short of calling for full disclosure" of problem loans. "So there's a confidence factor that's lacking," Bahrenburg said. "What this says is, the markets are skeptical about the plan." To understand why some interest rates have gone negative in Japan, it is best to start with the fear in the markets that a major Japanese bank -- or perhaps a number of them -- might collapse under the weight of bad loans, leaving depositors unable to recover much of their principal. Even though the chances of such a catastrophe may be small, the markets believe the risk is high enough that many Japanese banks have been forced to pay extra interest, called the "Japan premium," to induce foreign banks to lend them the dollars they need to fund their international operations. In recent weeks the Japan premium has risen sharply, to an average of about 0.75 points above what other major international banks have to pay to borrow money for three months. In midsummer the premium was about 0.4 percent. According to Bahrenburg and other analysts, the Japan premium is costing Japanese banks so much that in some cases they are obtaining dollars from Western banks through a different route, whereby the Japanese banks leave yen on deposit with Western banks at negative rates of interest. Negative rates mean depositors would be able to withdraw slightly less than they put in. One implication of what is happening is that people depositing yen with Western banks are worried enough about the creditworthiness of Japanese banks that they are willing to accept below-zero returns so that they can be sure of getting most of their principal back. Late yesterday, some of the problem of negative interest rates appeared to be dissipating, as yields rose back into positive territory on Japanese government bills. Dealers cited unconfirmed reports that the Bank of Japan had started lending large amounts of dollars to Japanese banks, easing the pressures on them at least temporarily.

To: Alias Shrugged who wrote (5195)	11/8/1998 2:28:00 PM
From: Lucretius	Respond to of 14427

mmm? this interesting? I found what you were looking at. Seems to contradict the other article? Yen Deposit Rates Drop Below Zero fears of interbank default Leading western banks have cut their yen deposit rates to below zero in the last few days in the strongest indication so far of growing anxiety about the solvency of their Japanese counterparts. The three-month London Interbank Offered Rate - the rate at which banks lend to each other - remained positive for Japanese yen yesterday at 39 basis points (0.39 percentage points), although this was the lowest level yet recorded. However, some banks, such as JP Morgan and Barclays Capital would only accept yen deposits at negative nominal rates of interest. Bankers said that this reflected the fact that depositors, including other Japanese banks, were unwilling to place their money with Japanese banks owing to fears about their declining creditworthiness. Depositors were willing to accept the sub-zero interest rates on offer owing to the lack of other destinations for their yen assets. All the alternatives - the Japanese stock market, Japanese government bonds or deposits with Japanese banks - were either too low-yielding or too risky, said bankers. At the same time, western banks have little demand for yen assets and are consequently offering punitively low and even negative rates. "The fact that people are willing to accept negative interest rates in yen is an alarming reflection on the state of the Japanese economy," said a banker in London. The swing is thought to represent one of the first times that any international market has recorded negative interest rates in recent history. According to the British Bankers Association, which calculates Libor on a daily basis, Barclays Capital has offered rates of minus 3 basis points for two to three month lending this week, while JP Morgan has offered rates as low as minus six basis points on yen deposits. Traders report that these "open" rates may be overstating the situation, since even lower rates have been privately agreed between some Japanese and European banks in recent days. The slump in yen deposit rates also reflects the growing problems faced by Japanese banks and companies in raising dollars in overseas markets, ahead of the end of the calendar year. In particular, some Japanese banks are now so desperate to raise dollar funds that they are agreeing to swap yen for dollars at increasingly disadvantageous rates. The Financial Times, Nov. 6, 1998