Bank of Japan Rate-Cut Speculation Jumps After Nikkei Report

By Mayumi Otsuma and Toru Fujioka

Oct. 29 (Bloomberg) -- Speculation the Bank of Japan will cut interest rates this week jumped after the Nikkei newspaper reported that the central bank may halve its target rate.

The chances that the central bank will cut the benchmark overnight lending rate to 0.25 percent from 0.5 percent on Oct. 31 rose to 62 percent from 8 percent yesterday, according to calculations by JPMorgan Chase & Co. using overnight interest- rate swaps.

The Nikkei reported that central bank policy makers are leaning toward lowering borrowing costs this week, without saying where it obtained the information. The bank came under pressure to cut rates after the yen surged 13-year high, driving the stock market to its lowest since 1982. The bank will make its decision by taking into consideration market moves, the Nikkei reported.

``It fits with their desire to limit yen strength,'' said Alan Ruskin, the Greenwich, Connecticut-based head of international currency strategy in North America at RBS, in a research note.

The yen fell for a second day against the dollar, extending its biggest decline since 1974, as global stocks rallied and speculation increased that the bank would lower the rate.

The Nikkei 225 Stock Average climbed 6.5 percent at 9:48 a.m. in Tokyo, for a two-day gain of 13.6 percent.

The bank didn't take part in this month's joint rate cut by counterparts from North America and Europe, saying Japan's borrowing costs are already ``very low.''

Yoshihiro Sugimoto, chief press officer at the Bank of Japan, declined to comment on the Nikkei report. A rate cut would be the first since March 2001.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net