MNI: BOJ Strengthens Stance to Curb High Repo Rate

The Bank of Japan on Tuesday strengthened its stance to curb a high repo rate caused by technical or seasonal fund demand by major commercial banks as the bank has vowed to stabilize short-term interest rates at low levels under yield curve control, MNI understands.

The BOJ offered to buy JPY7 trillion of Japanese government bonds through the tomorrow-next operation immediately after the bank offered to buy JPY2 trillion of JGBs through the same-day settlement operation.

The repo rate stayed at a high level as major commercial banks are attempting to raise funds from a limited pool of suppliers.

Bank fund demand may calm down after Wednesday, the end of the monthly reserve maintenance period, following the BOJ’s tomorrow-next operation. But fund demand that passes through the end of the year is expected to remain firm, possibly increasing pressure on the BOJ to inject funds beyond the end of the year.

On Monday, the BOJ offered to buy JPY2 trillion of JGBs through the same-day settlement operation under repurchase agreement to curb high repo rate, for the first time since July 2006.

If those banks cannot raise necessary funds, they will try to raise funds through the unsecured overnight call loan, pushing up the short-term policy rate to or above the BOJ’s target of -0.1%.

BOJ daily operations are not normally seen as affecting monetary policy decisions, but bank officials in charge of daily operations have to stabilize the short-term interest rates at low levels as they are required to fulfill the policy board’s mandate.