Bloomberg News

BOJ Sees Dollar-Loan Demand Surge 25 Times After Rate Cut

December 06, 2011

(Adds Libor in fifth paragraph, new quote in last paragraph.)

Dec. 6 (Bloomberg) -- Demand for the Bank of Japan’s one- week dollar loans surged 25 times after six central banks cut borrowing costs for the U.S. currency last week to ease credit amid Europe’s sovereign-debt crisis.

The BOJ today said it accepted all the bids for its seven- day dollar loans totaling $25 million, the most since March, and will charge borrowers a fixed rate of 0.6 percent. That compares with the total of $1 million in bids to borrow last time it offered one-week dollar loans at 1.08 percent on Nov. 29.

“The cut in the rate is the reason for the increase in bids,” said Shinsuke Kanabu, a project and research director at Central Tanshi Co., a Tokyo-based money-market dealer and broker. “Domestic banks have no problem getting dollar funding but probably wanted to get themselves familiar with the process.”

Central banks, led by the Federal Reserve, reduced the premium they charge lenders for dollars on Nov. 30. The new interest rate is the dollar overnight-index swap rate plus 50 basis points, and the program was extended by six months to Feb. 1, 2013, the Fed said on Nov. 30 in a statement. The Fed coordinated the move with the European Central Bank as well as the Bank of Canada, Bank of England, BOJ and Swiss National Bank.

Units of overseas banks such as BNP Paribas SA, Societe Generale SA and Deutsche Bank AG are eligible to borrow dollars from the BOJ. The one-week London interbank offered rate for dollars was 0.2 percent yesterday.

Central banks are offering rates higher than dollar Libor because they “don’t want financial companies to rush for their help,” said Takahiro Sekido, who worked at the BOJ for more than a decade before becoming chief Japan economist in Tokyo at Credit Agricole CIB. “The central banks’ lending is a last resort for financial companies because its use may spur rumors that they have hidden losses.”

--With reporting by Saburo Funabiki and Hidenori Yamanaka in Tokyo. Editors: Nate Hosoda, Jonathan Annells

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.


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