The Bank of Japan will start charging interest on some deposits it holds starting Tuesday, but most of the nation's banks may not be ready to set negative interest rates on overnight interbank lending after Gov. Haruhiko Kuroda's surprise Jan. 29 announcement.
The uncollateralized overnight call market — ground zero for funding markets as that is where banks lend to each other — has been the only place in Japan where interest rates stayed above zero for maturities shorter than 10 years. The overnight rate was the one targeted by the BOJ until Kuroda switched to monetary base growth in April 2013 with the move to unprecedented easing.
"Unsecured call rates are trading around zero or 0.001 percent and are likely to initially trade around zero as banks aren't catching up with systemic preparations," said Kenji Sato, a manager at the planning and research department of Central Tanshi Co., a Tokyo-based money-market dealer and broker. "The decision to adopt negative rates was so sudden and caught everybody off guard. Players are wary about causing systemic troubles, so they may trade around zero for now so as not to upset the system."
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