The bellwether money rate fell close to zero on the Tokyo money market Wednesday morning, following a decision by the Bank of Japan to boost liquidity in the financial markets.
The unsecured overnight call rate, which commercial banks charge each other on overnight loans, was quoted at 0.02-03 percent, down from 0.13 percent late Monday and a level considered almost zero in view of a 0.02 percentage point commission charged by money brokers.
The central bank pumped ample funds into the banking system with bill-purchasing operations Wednesday morning, leaving the amount of funds in accounts held by commercial banks at the central bank at 1.8 trillion yen more than Monday at 5.56 trillion yen.
On Monday, the BOJ decided to shift its monetary policy target from the overnight call rate to the balance of funds held in current accounts at the central bank, effectively resuming the 18-month-long "zero-interest-rate" policy it abandoned last August.
The BOJ said it will increase the current account balance from an average of 4 trillion yen in February to around 5 trillion yen, including funds of money market participants who are not required to keep reserves at the central bank.
The move is expected to bring down the overnight rate from 0.15 percent to effectively zero percent.
Reflecting the BOJ's decision to raise its outright purchases of outstanding government bonds, government bond prices soared to push the yield on the benchmark 10-year issue down to its lowest level since November 1998.