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BoJ drags down overnight rates after leap year rally

TOKYO: The Bank of Japan (BoJ) injected billions of dollars into the already-bloated financial system on Tuesday to drag down overnight rates which had soared on concerns over the leap year computer bug.

"Today the BoJ left a surplus of 11.4 trillion yen (104 billion dollars) in the money markets in order to curb an increase in short-term interest rates," said a bank official who declined to be named.

The overnight interest rate rocketed to 0.28 percent on Monday, a stunning rise from Friday's 0.02 percent. It was the highest level since the bank, battling deflation in Japan's depressed economy, first decided to guide overnight rates to nearly zero percent in February 1999.

The surplus in the financial system was up from 9.8 trillion yen on Monday, which was already sharply up from the normal daily figure of about one trillion yen, dealers said.

Hiroshi Hara, call market dealer at Asahi Bank Ltd., said the extra money had worked.

"Unlike yesterday, banks and investors are injecting money into the market, pushing back the market rate to a normal level," he said, and the overnight call rate had dropped back to 0.02 percent.

The BoJ said the computer system linking it with financial institutions was working without a hitch.

Leap years occur every four years, except in years which can be divided by 100. The exception to this rule comes if the year is divisible by 400, as in 2000, leading to concern that computers would fail to recognise the date.

The fund injection by the central bank was less than the massive 22.6 trillion yen which it used to flood the market on December 30 last year for the millennium bug. AFP