MONEY MARKETS-Japan TIBOR falls after BOJ eases policy

* Japan interbank rates decline after BOJ eases policy

* TIBOR, yen LIBOR spread at one year low

* New Zealand prices out rate hike after finance company
fall

By Umesh Desai

HONG KONG, Aug 31 (BestGrowthStock) – Japanese yen interbank rates
fell on Tuesday after the central bank eased its monetary
policy to provide cheap fixed rate loans to the banking system
in a move which is unlikely to stimulate demand for credit.

The Bank of Japan expanded its fund supply tool at an
emergency meeting on Monday, increasing the volume of money
available to banks under its fixed-rate fund supply operation
to 30 trillion yen ($351 billion) from 20 trillion yen.

It also put in place a six-month fund operation in addition
to the three-month loan programme already in place.

The announcement which came after the interbank fixings had
taken place on Monday nudged the rates lower on Tuesday.

The 6-month Tokyo interbank offered rate (TIBOR)
(ZTIJPY6MD=: ) fell half a basis point to 0.48 percent and the
3-month TIBOR (ZTIJPY3MD=: ) eased to 0.36308 percent from
0.36692 percent.

The BOJ is under pressure from the government to protect a
fragile recovery by curbing the yen’s rise that took it to a
15-year peak against the dollar last week, a climb that is
hurting exports and can prolong deflation.

“There will be marginal effect of these policy measures.
The issue in Japan is not the cost of credit, it is the demand
for credit,” said Kirby Daley, senior strategist at Newedge
Group.

“The intended effect of substantially increasing business
activity, corporate borrowing and the side effect of weakening
the yen are unlikely to be achieved through these measures.”

The gap over the yen LIBOR (JPYLIBOR: ) rates also collapsed
following the easing in the TIBOR. The 6-month spread is at a
one year low of 4.375 basis points. Prior to July last year
TIBOR was below LIBOR.

Euroyen futures reversed some of their recent falls with
the June contract (JEYv1: ) rising for the first time in nearly a
week.

NZ RATES RALLY

New Zealand markets priced out further any chance of a rate
increase in policy rates at next month’s central bank meeting,
a recent trend that gathered pace after the collapse of South
Canterbury Finance, one of the biggest finance companies in the
country.

One year swaps (NZDSM3NB1Y=: ) eased 6 bps to 3.41 percent
and the 3-year contract (NZDSM3NB3Y=: ) fell 10 bps to 3.88
percent, flattening the short end of the curve.

Implied money market rates reflected only a 12 percent
chance of a rate rise in September (CSRBNZ=CSAU: ), a stark
contrast with the situation in late July when investors saw a
100 percent chance of a hike.

“It is NZ’s biggest non-bank finance company so it will
cause issues with financing for the wider economy, as well as
confidence issues,” said a Wellington-based trader.

Privately-owned South Canterbury Finance, had collapsed
after a bid to recapitalise it failed, the company said on
Tuesday.

South Canterbury Finance, which has listed debt, had a
deadline of the end of August to secure new capital, or face
receivership.[ID:nWLF004794]

Last month, the RBNZ raised its cash rate by 25 basis
points to 3 percent, its second consecutive rise, but said
further increases would probably be more gradual because of a
subdued economic outlook.

The average cost of 3-month funds in Singapore
(SIUSD3MD=ABSG: ) eased to 0.30125 percent from 0.30444 percent.
The rates, at a new four-month low, are down nearly 18 bps this
month having fallen daily since July 16, the last time they
rose.
(Editing by Tomasz Janowski)

MONEY MARKETS-Japan TIBOR falls after BOJ eases policy