Bank of Japan to Offer Unlimited Dollar Funds to Ease Credit

By Mayumi Otsuma

Oct. 14 (Bloomberg) -- The Bank of Japan said it will offer lenders an unlimited amount of dollars, joining European counterparts in attempting to lower borrowing costs in money markets and freeing up credit worldwide.

The central bank will ``introduce U.S. dollar funds- supplying operations whereby funds are provided at a fixed rate set for each operation for unlimited amount against pooled collateral,'' it said in a statement in Tokyo today.

Japan's decision came a day after the Federal Reserve said the European Central Bank, Bank of England and Swiss National Bank will offer European banks as many dollars as they want at fixed interest rates against ``appropriate collateral.''

Flooding the global financial system with the world's reserve currency helped stock markets rebound after last week's 20 percent slide in the MSCI World Index. Japan's Nikkei 225 Stock Average surged 14.2 percent today, its biggest-ever gain.

The policy board held the key overnight lending rate at 0.5 percent in a unanimous decision at today's meeting. The Bank of Japan didn't participate in last week's coordinated rate cut by central banks in North America and Europe, saying the country's borrowing costs are already ``very low.''

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