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To: jach who wrote (39851)	2/13/1999 11:08:00 AM
From: jach	Respond to of 164684

Message 7810173

To: jach who wrote (39851)	2/13/1999 12:16:00 PM
From: jach	Respond to of 164684

-OT- Message 7811000

To: jach who wrote (39851)	2/13/1999 2:13:00 PM
From: Glenn D. Rudolph	Respond to of 164684

February 15, 1999 Bank of Japan Remains a Milquetoast, Unfortunately; Why U.S. Interest Rates May Soon Stop Their Climb By William Pesek Jr. The Bank of Japan isn't known for taking bold steps, and that reputation remained intact on Friday as the central bank ever-so-slightly trimmed the rate banks charge one another for overnight loans. The cut, from 0.25% to 0.15%, was meant to put a bit of life into Japan's moribund economy, but the markets were unimpressed. The price of Japanese government bonds fell on the news because investors had been hoping for a larger rate cut. Bond prices likewise declined in the U.S. and Canada, in part because of worries that investors will be forced to shift funds to Tokyo from North America to cover losses on Japanese bonds. "Some in the marketplace were geared up for more from Japanese officials," said Robert Sinche, currency analyst with Citigroup's Citibank unit. The Bank of Japan decided against trying more aggressive measures, such as purchases of more Japanese government bonds, a move that many experts say is needed to halt a worrisome rise in Japan's long-term interest rates and stabilize markets in Tokyo. Without more assertive action from the Bank of Japan, it seems unlikely long-term rates in Japan will decline. Some investors feel Friday's paltry rate cut marked a continuation of the head-in-the-sand policies that have fostered weak economic activity in Japan for some time now. The lackluster rate cut may lead government officials to increase government spending, issuing more debt in the process. That, unfortunately, would only serve to push yields higher and act as a drag on the economy. This was the Bank of Japan's second rate cut since last September, and it underlined how few options Japan has left to revive its economy. With short-term rates barely above zero, there is little room to cut rates further. Hence the need for more unconventional action. As we mentioned in this space last week, one idea calls for Japanese law to be amended to allow the Bank of Japan to buy newly issued government bonds. Right now the central bank is barred from buying bonds directly from the government. If the Bank of Japan considers the plan a threat to its independence, it could, at the very least, buy additional government bonds in the open market. On the bright side, last week's rate cut could weaken the yen slightly against the dollar and other currencies. Karen Hawkett of Stone & McCarthy Research Associates notes that the yen's recent strength against the dollar poses a challenge to Japan's export-driven economy.