Japanese Bank Says, “Interest Will Be Given If Money Is Borrowed”

“Overnight loan for 15 billion Japanese Yen will be provided. An interest at the rate of

0.01% per annum will be added to your loaned money if you borrow it.”

Last month, European Bank A in Tokyo sent to several banks a pamphlet of the contents that it will provide an overnight loan, a very short-term fund for a call loan transacted between banks, at a minus lending rate.

This message does not mean that a borrower will have to pay the interest, but that a lender will add the interest to the loaned money as a tip to the borrower. Immediately, a historically new transaction at a minus interest rate was successfully made after two foreign banks agreed to use all the money.

On the 3rd, the Nihon Keizai Shimbun reported that the confused atmosphere of financial market due to the prolonged recession of Japanese economy, which had caused the call market rate to drop to the minus since 24th of last month, became more ominous.

Bank A was repaid the principal deducted by the interest corresponding to an annual interest rate of 0.01% after it had lent 15 billion Japanese Yen. The reason this bank gave a loan by being burden with a minus interest rate was because it was certainly profitable.

Bank A promised a local bank in Japan requiring an immediate fund in US Dollar to return its Japanese Yen deposit received in return for its US Dollar loan as a security after the deduction of interest at an annual interest rate of 0.08% from the deposit. Bank A judged that it would be much more profitable to provide a fund for the call market at an annual minus 0.08% interest rate in consideration of custody expense although it can accumulate an enormous amount of cash in Japanese Yen in the deposit box and return it.

There was no such a case in other countries in the world that the interest rate in the call market compared with as the flood vessel of financial market was fallen into the minus. Financial specialists analyzed, “This reflected the clear phenomenon of how much the sovereign risk had deteriorated due to the long-term recession and the downgrade of country credit rate” and added “It would be more difficult to escape from the deflation if the decrease in the interest rate adds to the price fall.”

parkwj@donga.com