BoJ to inject $5.0b into banking system

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TOKYO, Aug 13 (AFP): Japan's central bank announced today it will inject 600 billion yen (5.0 billion dollars) into the banking system to avert liquidity shortages after turbulence on global financial markets.
Worries about problems in the US mortgage market have caused liquidity to dry up in money markets as private banks withhold funds, prompting the Japanese, US, Eurozone and other central banks to offer extra cash.
The Bank of Japan (BoJ) had already pumped one trillion yen into the money market Friday as part of a concerted global action by central banks to ward off a credit crunch due to problems in the US sub-prime mortgage market.
The concern is that if the banks become increasingly reluctant to provide funds, the broader economy as a whole will slow since businesses will not be able to finance their operations.
"The jury is still out on the potential economic fallout resulting from this tightening of credit," Morgan Stanley analysts wrote in a research note.
"Although we expect the direction is down, we think the global impact will fall well short of recession," they added.
Sub-prime mortgages are lent to borrowers with poor credit ratings.
The US Federal Reserve pumped a further 38 billion dollars into the US banking system Friday, its biggest operation since shortly after the September 11, 2001 terrorist attacks.
The European Central Bank (ECB) for its part injected 155.85 billion euros (212.98 billion dollars) into the Eurozone banking system over Thursday and Friday.
The concerted action helped to reassure investors, with Wall Street staging a late recovery Friday to end only slightly lower after heavy early losses.
Japanese share prices staged a modest rebound Monday, with the benchmark Nikkei-225 index of leading shares up 47.26 points at 16,811.35 in early deals, after plunging 2.37 per cent Friday to a near five-month low.
Meanwhile, Japan said today its economy grew at a tepid 0.5 per cent annualised pace in the second quarter of 2007, slowing sharply as exports and consumer spending lost steam.
The world's second largest economy, which is in the midst of its longest post-war recovery, expanded for a 10th straight quarter, helped by brisk spending by companies on new plant and equipment.
But the sharp slowdown further dampened expectations that the Bank of Japan (BoJ) might raise its super-low interest rates next week, particularly in light of recent financial market turmoil sparked by the US housing sector woes.
"Growing concerns for a negative impact on the economy from the US subprime lending woes through market instability could lead the BoJ to hold off on a rate hike until September," predicted Morgan Stanley economist Takehiro Sato.