| TOKYO, July 4
TOKYO, July 4 The yield on three-month Japanese
government discount bills fell to zero percent on Friday for the
first time since late 2005, on fears that short-term bills could
disappear from markets as the Bank of Japan vacuums them up to
facilitate its asset purchases.
The benchmark three-month yield suddenly
dropped 2.9 basis point, a sizable move in Japanese money
markets where most products yield 10 basis points (0.1 percent)
"There has been talk that the bills yield could fall to zero
or even negative. I wouldn't be surprised if it falls below
zero," said Katsutoshi Inadome, strategist at Mitsubishi UFJ
Morgan Stanley Securities.
Previous episodes where the yield on government bills fell
to zero often took place during financial crises, when investors
rushed to the safety of government debt.
But with Wall Street shares at record highs, no investor was
buying government bills for such a purpose.
Still, traders fear there could be a shortage of short-term
bills available to investors, who need to park a certain amount
of money in liquid government bills as a substitute for cash.
The BOJ has been buying a large amount of short-term bills
and other government debt to pump money into markets as a part
of its campaign to kick-start the economy.
The BOJ's holding of Treasury Bills rose to around 34
trillion yen at the end of June, more than doubling from 16.4
trillion yen in March last year, just before the BOJ started its
massive asset purchase scheme.
The BOJ, which is already holding 27 percent of the total
bill issues, is expected step up its buying in bills as another
major tool the central bank uses to pour funds into markets is
Its fund-supplying operation hardly attracted bids in recent
months because no banks need to borrow funds from the BOJ, thus
forcing the BOJ to rely on buying in government bills.
In April last year, the BOJ committed to almost double the
monetary base -- the amount of money it provides to the economy
-- in two years by around 132 trillion to around 270 trillion
Under that scheme, the BOJ plans to increase its long-term
bond holdings by 100 trillion yen.
It needs to provide another 32 trillion yen through other
channels, including small buying in stock ETFs (Exchange Traded
Funds), but many money market players think buying short-term
bills is the only major option to fill the gap.
(Editing by Kim Coghill)