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Bank of Japan Boosts Funds in System to Ease Credit

By Keiko Ujikane
Bloomberg News Service
Friday, August 10, 2007

TOKYO -- The Bank of Japan added 1 trillion yen ($8.49 billion) to the financial system, joining central banks in the U.S. and Europe in supplying cash to assuage a credit crunch.

The cash injection was the largest same-day operation since June 29, according to Bloomberg data. The European Central Bank yesterday loaned 94.8 billion euros ($130 billion) in response to a sudden demand for cash from banks. The U.S. Federal Reserve added $24 billion in temporary reserves to the banking system yesterday, the most since April.

"The U.S. and European central banks are trying to make people feel relieved by supplying liquidity, so the Bank of Japan might need to take cooperative action," said Shin Nagai, head of the treasury department at ABN Amro Bank NV in Tokyo.

The ECB yesterday said it would provide unlimited cash as the biggest jump in the London interbank offered rate since June 2004 signaled banks are withholding funds as the subprime mortgage crisis spreads. Paris-based BNP Paribas SA halted withdrawals from three investment funds because the French bank couldn't value its holdings.

Turmoil in global credit markets may prompt the Bank of Japan to delay raising its 0.5 percent overnight rate, the lowest among major economies. Investors today saw a 32 percent chance of an increase at the Aug. 23 board meeting, according to Credit Suisse Group calculations based on the exchange of interest payments. That's down from 65 percent yesterday.

Japan's overnight call loan rates traded at about 0.52 percent after the operation, down from 0.545 percent earlier in the day, according to Tokyo Tanshi Co.

The yen rose to 160.98 per euro at 10:08 a.m. in Tokyo from 161.63 yesterday when it climbed 2.2 percent, the most since May 2001. Japan's currency traded at 117.82 per dollar from 118.16.

The yield on Japan's benchmark 10-year bond fell 5 basis points to 1.73 percent, according to Japan Bond Trading Co., the nation's largest interdealer debt broker.

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