UPDATE: Firm Money Demand As New BOJ Funding Facility Opens
Banks lined up to take Y1.225 trillion at an ultra-low cost of just 0.10%, putting up corporate bonds and commercial paper as collateral. The BOJ normally makes only overnight funds available so cheaply, but money from Thursday's operation - the first test of a new funding facility designed to avoid any cash crunch over the March 31 fiscal year-end - will be available from Jan. 14 through April 3.
"As a central bank, we have more to do" to ensure a smooth flow of funds and bolster corporate fundraising, BOJ Gov. Masaaki Shirakawa told a parliamentary committee Thursday.
Thursday's was the first of six planned operations under the new facility, which will run through April 30. The move comes as the BOJ and other central banks seek creative ways both to ensure adequate liquidity in the financial system and encourage banks to lend their money out to businesses that need it.
Japanese companies have reported that banks are becoming stricter about extending loans because of a slowdown in the economy and continued credit market tensions during a global financial crisis. The BOJ's tankan business sentiment survey released last month showed that most firms find banks' lending stance severe rather than accommodative.
The BOJ's new facility, announced at its Dec. 2 policy board meeting, is aimed at helping firms raise funds more easily.
At the time, Shirakawa said the goal was "facilitating corporate financing during the run-up to the calendar and fiscal-year end" by helping banks raise longer-term funds more cheaply than they could in the market.
Indeed, although funding rates in Japan have come down in recent weeks, three-month Tibor - the rate Japanese banks charge each other for loans - was still at 0.74% Thursday.
Even the BOJ's other open-market operations cost more than funds under the new facility. Regular fund-supplying operations conducted Monday and Wednesday against pooled collateral - the first BOJ operations to make money available through the fiscal year-end - brought in average successful bids of 0.203% and 0.198%, respectively, BOJ figures show.
"Considering that on the one hand you have this pooled collateral operation where funds cost almost 0.2%, and here you can use this corporate debt to fund at 0.1%, it's a good deal, 10 basis points lower," a strategist at one Western bank in Tokyo said. "That's one reason I think it will have some effect in the money markets."
The BOJ has said the new facility will provide an unlimited amount of funds. But some observers, who noted that the amount of commercial paper underwritten by banks fell by about Y3 trillion last autumn from the monthly average, expect the new facility just to make up that shortfall.
Thursday's operation "was quite sizable, about 40% of the planned amount, so it really shows that the BOJ has a strong commitment to make sure that the money markets function properly," the strategist said.
Might Not Increase Lending Much Mizuho Securities chief market economist Yasunari Ueno described Thursday's results as strong, and said demand should only intensify as banks become more familiar with the new facility and funding needs increase into the fiscal close.
But he doubted whether the facility will achieve its other goal of stimulating the corporate debt market, as spreads on each corporate bond are different and many names face a risk of downgrade.
Despite the active bidding Thursday, "funding demand toward the fiscal year-end and changes in external factors such as stock prices are keys to whether corporate financing conditions will improve in the future," Ueno said.
In addition, Shinsei Securities analyst Yasuhiro Matsumoto pointed out, "the solid bid at the operation doesn't necessarily mean an easing of lending to firms," as deteriorating economic fundamentals may make banks wary of passing the money along.
Under the new framework, the BOJ can accept corporate bonds and commercial paper as collateral and provide funds to 56 financial institutions, including large "city" banks, regional banks and foreign banks' affiliates operating in Japan.
-By Michael S. Arnold and Megumi Fujikawa, Dow Jones Newswires; 81-3-5255-2929; michael.arnold@dowjones.com; megumi.fujikawa@dowjones.com.
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Publié le 08 janvier 2009 Copyright © 2009 Dowjones
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