Japan’s unsecured overnight call rate dropped below zero for the first time in more than a decade, a day after the Bank of Japan (BOJ) began charging interest on some lenders’ excess reserves.
The volume-weighted average for the rate in the overnight call market — ground zero for funding because it is where banks lend to each other — fell to minus-0.002 percent, the lowest since November 2004, according to BOJ data.
“It’s true trading was done at minus rates in the overnight call market,” said Kenji Sato, a manager at the planning and research department of Central Tanshi, a Tokyo-based money-market dealer and broker.
Overnight borrowing costs had managed to stay above zero for more than a week after 10-year government bonds yields went negative following the BOJ’s announcement on Jan. 29 that it would charge 0.1 percent on some lenders’ deposits at the central bank as of Tuesday.
Bank Governor Haruhiko Kuroda earlier this month said that rates might be cut further if needed.
Yen index swaps indicate the overnight rate will be minus-0.22625 percent during the period between the BOJ’s meetings on Oct. 31 and Nov. 1 and Dec. 19 and Dec. 20, according to data from Meitan Tradition.
The outstanding balance of the call market fell 73 percent to a low of ￥4.54 trillion (US$40 billion) on Tuesday, according to data from the Brokers Association.
Activity has been subdued since Tuesday because few financial institutions have systems that can handle negative rates, Sato said.
The BOJ’s negative rate on Tuesday would have applied to ￥23.2 trillion if the policy had been in place last month, the bank estimated.
While the new monetary tool took effect on Tuesday, figures for its application will not be available until the middle of next month.
The central bank had previously estimated that the minus rate would be applied on about ￥10 trillion of financial institutions’ reserves held at the BOJ.
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