Yen borrowing costs stable

Yen interbank rates were stable on Monday after the Bank of Japan injected massive amounts of liquidity into the banking system, while eurozone liquidity conditions looked comfortable before Tuesday's ECB tender. In response to the threat of financial disruption following last Friday's earthquake, the Bank of Japan extended 183 billion dollars of liquidity support to its banks.
The benchmark London interbank borrowing rate for yen was unchanged on the day at 0.1925 percent. "Unless we see major liquidity stress, which is unlikely now then I don't think (yen Libor) will move too much. I think the Bank of Japan has seen this coming and rightly stabilised the market," said Geoffrey Yu, currency strategist at UBS in London. Money market traders said there had been little impact on the cost of yen funding, but that the economic impact of the natural disaster was yet to be fully digested by the market.
The five-year yen/dollar basis swap fell to -53.250 basis points, down from -50.4 bps at Friday's open though market participants said it was too early to distinguish whether the move was driven by increased demand for safe-haven dollar funding or direct effects of the BoJ moves. Meanwhile in the eurozone, focus turned to Tuesday's refinancing operation at the European Central Bank, with the expectation that liquidity conditions would remain comfortable and overnight rates continue their downward trajectory.
The Reuters poll also showed a majority of those surveyed believed the weekend's unexpected progress on a deal towards reforms to the eurozone's crisis-fighting tools was not going to delay the ECB's withdrawal of funding support to banks. Supporting the case for an exit from the ECB's extraordinary provision of liquidity, Bank of Spain data showed a fall in borrowing by Spanish banks from the central bank to 51 billion euros in February, down from 57 billion euros in January, and well below last July's peak of 140 billion euros.