Bank of Japan to inject 800 bln yen into banking system as rates rise
The Bank of Japan said Tuesday it will inject 1.0 trillion yen (1 US dollar = 114.71 yen) into the banking system in a bid to curb a rise in short-term interest rates due to increased demand for new funds.
This is the fourth straight working day that the central bank has injected extra liquidity into the banking system. Analysts had expected the BoJ to inject 800 billion yen in funds this morning. Financial institutions were required to place a certain amount of reserves with the BoJ starting last Thursday as part of a monthly operation, tightening supply and demand conditions. The reserve-accumulation period will start on the 15th of each month and end on the 16th.
A wait-and-see stance ahead of the BoJ's policy board meeting this week also prevented lenders from putting short-term money up for sale on the interbank market, although the central bank is widely expected to keep interest rates unchanged.
Between Thursday and Monday, the BoJ injected 2.6 trillion yen into the short-term money market, but the overnight call rate stayed above the central bank's target of 0.5 percent this morning, prompting it to inject extra liquidity.
The BoJ siphoned off a total of 3.6 trillion yen between Tuesday and Wednesday last week from the banking system by selling treasury bills after the overnight call rate dropped to well below 0.5 percent.
The central bank had poured in a total of 1.6 trillion yen between Aug 10 and Aug 13 as part of a concerted global action by central banks to ward off a credit crunch caused by problems in US subprime mortgages.