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To: Lalit Jain who wrote (24026)	12/9/1998 12:23:00 AM
From: Lalit Jain	Read Replies (1) \| Respond to of 117044

BOJ may cut rate to calm cry for loans-economists By Risa Maeda TOKYO, Dec 9 (Reuters) - The Bank of Japan (BOJ), if overwhelmed by a corporate cry for loans, may cut its key lending rate next week to run its new discount lending facility effectively, economists said on Wednesday. In an attempt to ease a credit crunch, the BOJ last month introduced a special lending facility through which until April it will extend loans to banks equal to half their new corporate lending at 0.5 percent, the same as the official discount rate (ODR). A cut in the ODR would result in a cut in the applied lending rate, which would likely be welcomed by banks when the BOJ starts providing the loans from December 21, economists said. Banks are currently able to raise funds from the money market at a lower cost than 0.5 percent, since the BOJ cut its guiding level of overnight call money to 0.25 percent on September 9. ''The main scenario this time is that the BOJ will leave monetary policy unchanged. But there is a sub-scenario, with a probability of 30 percent or lower, that there will be a cut in the ODR,'' said Kazuto Uchida, chief strategist at Tokyo-Mitsubishi Securities. He said a cut in the ODR would be possible if the BOJ's quarterly ''tankan'' business sentiment survey next Monday showed bleak prospects for corporate lending until March, when most of the Japanese corporations close their books. The BOJ will hold its board meeting on Tuesday, its last meeting of calendar 1998. ''The board members are highly likely to discuss extra measures to support corporate finance, and one would be a cut in the ODR,'' Uchida said. In the last tankan in September, even big companies saw a worsening in their financial position from three months before. The majority of economists said, however, the BOJ was likely to leave its policy unchanged next week, as it watched for effects of its already announced monetary measures and of the government's economic stimulus steps. ''The BOJ has been prepared for a possible liquidity crunch,'' said Yasunari Ueno, chief market economist at Fuji Securities. At its September 9 meeting, the BOJ said it would supply as much liquidity to the money market as needed regardless of the target of the overnight rate, to stabilise the financial markets. Thus, economists said, the BOJ is able to cut the overnight rate, which is the rate banks use to lend funds to each other, without making announcements. The BOJ cut the key money market rate from just below 0.50 percent, but it left the ODR unchanged at 0.50 percent at its September 9 meeting. Economists also said the BOJ could buy time now that one of its concerns -- commercial banks' year-end funding -- is almost over. Yasuhiko Ushikubo, a senior economist at the Industrial Bank of Japan (IBJ), said the BOJ may have just reviewed its grip over banks' year-end funding, as it conducted the first fund-draining operation affecting the year-end on Monday. Until last week, the BOJ had consistently since early October increased the injection of funds maturing on and after January 1. IBJ's Ushikubo said that to deal with future uncertainties, the BOJ was likely to keep other options open, which would include boosting cash liquidity dramatically by stepping up the volume of its outright government bond-buying operations. Ushikubo said: ''The BOJ does not have to strip itself naked now. The end of the business year next March is still a long way away.'' A senior trader at a city bank's treasury division said: ''There may be failures of banks or construction firms or a clash in the stock market in Tokyo or on Wall Street.'' He added: ''The BOJ needs to keep good cards for such occasions.'' biz.yahoo.com