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Link Tuesday December 14, 10:13 pm Eastern Time

Japan 'premium' on bank fund costs turns negative

TOKYO, Dec 15 (Reuters) - Japanese banks' fund-raising costs in the short-term money market fell below those of major U.S. and European banks on Wednesday, as Japan's banks have mostly procured enough funds to offset a year-end shortfall, bankers said.

The so-called Japan premium, the extra funding cost that Japanese banks are asked to pay when raising funds in the European interbank money market, fell to a negative 10 basis points (bps) on Wednesday, they said.

Japanese banks paid 0.25-0.30 percent for one-month funds, compared with 0.35-0.40 percent for major Western banks.

The Japan premium stood at 10 bps at the beginning of the month, but dissappeared by December 9 and reversed into a discount on Wednesday, bankers said.

Major Western banks were paying a premium of around 5 bps for two-month euro yen loans, bankers said.

``The emergence of a Japan discount is a sign that Japanese banks have already completed most of the fund raising to cover the end-year short-fall,'' a senior trader at a European bank said.

Yet he added the Japan discount could narrow next week as banks are expected to procure more funds to adjust year-end balances.

The end-year money market shortfall is expected to be larger than usual this year as many people are expected to withdraw extra cash from bank accounts as a precaution against possible Y2K computer problems.

Meanwhile, some foreign banks operating here have been relatively slow to procure needed funds, resulting in the foreign banks' premium.

In November, the Bank of Japan (BOJ) said it has decided to accept U.S. Treasury securities as collateral for yen loans extended to financial institutions to avert liquidity problems due to the millennium bug.

The temporary measure covers the period from December 1 to January 31.

It is the first time for the BOJ to rule foreign currency-denominated securities acceptable as collateral.

Bankers said that the BOJ's step is mainly targetted at foreign banks operating in the Japanese money market.

The Japan premium peaked at 120-130 bps in December 1998 after a number of Japanese banks and brokerages collapsed earlier in the year.

-- (in@the.news), December 15, 1999

Answers

Thanks for the post --in. Compromise in these interesting times...

-- kevin (innxxs@yahoo.com), December 15, 1999.