The Bank of Japan is withdrawing $5bn funds it poured into the money market in the past two working days amid signs that the liquidity crunch may not be as bad as it was initially conceived, with the calm slowly returning to global financial markets.
The Bank of Japan has injected money over the concern of US subprime woes, which has paralyzed many economies, but after experiencing improvement in the market and ample liquidity in Japanese market, central bank retrieved fund from the money market.
Bank is withdrawing funds through sales of treasury notes. While selling, the overnight call rate dropped to around 0.4%, below the BoJ’s target of 0.5%, showing there is ample liquidity in the market. BoJ confirmed the withdrawal of injected funds, due to the rates continued to trade at levels lower than perceived and not relatively making any effect on the money market.
Japan also has less concern about liquidity as a sharp drop in rates that took place an hour ago and the central bank’s precautions action automatically guard Japanese liquidity problem. It is generally believed that Japanese financial institutions have only limited exposure to the subprime market, and the Bank of Japan apparently conducted the liquidity injection for the sake of a concerted action with the US and Europe.
BOJ also has the lowest interest rates of any major country and its monetary policy aimed at stimulating the country with easy credit after years of deflation and economic depression. It’s also rumor that Japan is planning to raise it benchmark rates by 0.50 to 0.75, to curtail its borrowers purchasing rate.
Via: AFP
