BOJ's Shirakawa Sees No End in Sight to U.S. Crisis

By Mayumi Otsuma and Lily Nonomiya

Sept. 19 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa said there's no end in sight to the financial-market turmoil that sent Lehman Brothers Holdings Inc. into bankruptcy and wiped $19 trillion from world stocks since October.

``When these developments will calm down is not in sight,'' Shirakawa told a parliament committee today in Tokyo. ``We are closely watching how things will develop.''

The world's biggest central banks agreed yesterday to pump $180 billion into the global financial system to restore confidence after banks hoarded money on concern more will follow Lehman into bankruptcy. The Bank of Japan said it will offer up to $60 billion to local and foreign financial institutions to help them borrow dollars.

``Tensions in global financial markets have risen over the past week and demand for funds in money markets has grown,'' Shirakawa said. ``If we took no action, tensions in financial markets might have grown further and affected economic growth.''

The cost of borrowing in dollars for three months jumped the most since 1999 this week, with the crisis spreading abroad as U.K. mortgage lender HBOS Plc slumped and Russia poured money into its banks. Interbank lending rates have since fallen, and world stocks rallied today after the U.S. government started planning new laws to halt the credit-market meltdown.

Shirakawa said the hoarding of cash by banks overseas may put pressure on Japan's money market. When financial institutions have difficulty raising dollars, they tend to borrow in yen and then convert the cash to U.S. currency, pushing up interest rates in yen money markets, he said.

`Wheel Stops Turning'

``The markets are open around the clock and they've become globalized to such an extent that if a wheel stops turning in one place it causes trouble for the entire system,'' Teizo Taya, an adviser to Daiwa Institute of Research and a former Bank of Japan board member, said on Bloomberg Television.

Central banks will continue to discuss measures they can jointly take to ease global market turmoil, Shirakawa said.

When asked whether the Bank of Japan would consider cutting interest rates, the governor said his board doesn't predetermine policy and ``every option'' is possible. At 0.5 percent, Japan's key rate is the lowest in the industrialized world.

Shirakawa also said the central bank holds some securities issued by Fannie Mae and Freddie Mac, the U.S. finance-mortgage companies bailed out by the U.S. government this month. He declined to disclose the amount.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net