Japan, Australia Add $15.7 Billion to Aid Confidence

By Candice Zachariahs and Nate Hosoda

Sept. 22 (Bloomberg) -- Central banks in Japan and Australia added $15.7 billion to the financial system to hold down borrowing costs, slowing the pace of cash injections as a U.S. plan to buy banks' bad debts eased credit-market jitters.

The Bank of Japan added 1.5 trillion yen ($14 billion) to the financial system in its fifth day of fund injections. The Reserve Bank of Australia added A$2.025 billion ($1.7 billion) to the financial system, about a fifth lower than the daily average for the week ended Sept. 19.

The U.S. Federal Reserve led central banks in Europe and Asia in pouring cash into global financial markets over the past week as the collapse of Lehman Brothers Holdings Inc. sparked a crisis of confidence. Stocks rallied and money-market rates dropped after the U.S. government announced a $700 billion plan to avert a financial meltdown by buying troubled assets.

``Though funding pressures are still there, some of the tightness in cash markets has eased,'' said Sally Auld, interest rate strategist at JP Morgan Securities Australia Ltd. in Sydney. The RBA ``put a little bit of cash in today though it's not as dramatic as some of the injections last week.''

Japan's overnight call loan rate was at 0.25 percent after the BOJ's operation at 9:20 a.m. in Tokyo, falling from as high as 0.45 percent, according to Tokyo Tanshi Co.

The BOJ pumped 11 trillion yen into the money markets last week, its biggest injection in at least six years as central banks around the world worked together to prevent a financial meltdown. The Reserve Bank of Australia added A$12.3 billion in the five days to Sept. 19, the most in a week since August 2007.

Non-Japanese Banks

``There may have been a need for today's operation because foreign banks' repo and operation rates are high,'' said Shinsuke Kanabu, a project and research director at Central Tanshi Co. in Tokyo. ``If you look only at the Japanese inter- bank rates, there's no need for the BOJ injections.''

Non-Japanese banks are facing the highest premiums to borrow yen overnight since UBS AG, the European bank hardest hit by the subprime crisis, reported a record loss on Feb. 14. The BOJ last week said it will use its $60 billion swap arrangement with the Federal Reserve to supply dollars to local and foreign financial institutions as required by market conditions.

Foreign lenders pay 0.61 percent to borrow yen overnight, while Japan's banks pay 0.23 percent, according to Tokyo Tanshi.

Australian Borrowing Costs

Australian banks' borrowing costs dropped from the highest in six months, according to a gauge that measures the availability of funds in the market.

The difference between the rate banks charge each other for three-month loans and the overnight indexed swap rate stood at 75.5 basis points at 11:34 a.m. in Sydney, down from 92.5 points on Sept. 19, Bloomberg data show. A basis point is 0.01 percentage point.

Europe's main central banks lent $71 billion on Sept. 19 as part of a coordinated effort with the Fed.

The European Central Bank poured $40 billion into the markets while the Bank of England allotted $20.8 billion out of $40 billion offered and the Swiss National Bank added $10 billion. The ECB's and the SNB's auctions were oversubscribed. The Fed on Sept. 18 almost quadrupled to $247 billion the amount of dollars central banks can auction around the world.

In repos, central banks typically buy debt securities for a set period, temporarily raising the amount of money available in the banking system. They don't signal a policy shift.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.netNate Hosoda in Tokyo at nhosoda@bloomberg.net