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MOF sets 0.5% coupon rate for new 2-yr bonds, highest in 5 yrs.

TOKYO, Feb. 28 Kyodo

Japan's Finance Ministry said Tuesday it has set the coupon rate on two-year government bonds to be issued next month at 0.5 percent per annum, up 0.2 of a percentage point from the February issue and the highest level in five years and two months.

The rise reflects growing speculation that the Bank of Japan may scrap its five-year-old quantitative credit-easing policy at its Policy Board meeting March 8-9 or the next gathering April 10-11.

The coupon rate for two-year bonds -- which is heavily influenced by short-term interest rates effectively controlled by the BOJ -- had moved between 0.1 percent and 0.3 percent since the central bank introduced the quantitative easing policy in March 2001.

Under the unorthodox policy, the BOJ floods financial markets with excess cash to anchor short-term rates near zero in a bid to combat deflation and restore Japan's bad loan-laden financial system.

The No. 242 two-year government bond will be issued March 15 for maturity on March 15, 2008.
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Publication:Japan Weekly Monitor
Date:Mar 6, 2006
Words:170
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