Amadeusz Juskowiak

Japan expected to cut base rate for state bodies

Japan is expected to cut the base lending rate for state financial institutions to 55 pct from 62 as part of the recent pact by major industrial nations in Paris Finance Ministry sources said

They said the cut is based on a revision of the Trust Fund Bureau Law which should be approved by parliament on March 3 abolishing the 605 pct minimum interest rate on deposits with the bureau

The bureau channels funds to government financial institutions for public works and other official uses they said

The base lending rate for state bodies such as the Japan Development Bank Peoples Finance Corp and the finance corporations of local public enterprises usually moves in tandem with longterm prime rates the sources said

However it was impossible for them to follow the last cut to 58 pct from 62 pct on January 28 because the Trust Fund Bureau rate was legally set at 605 pct

The ministry will abolish the minimum rate and introduce a marketrelated one to resolve the problem and stimulate the domestic economy they said

On Tuesday the ministry allowed longterm bankers to cut their prime to a record low of 55 pct effective February 28 The move suggested it had reached agreement with depositors using the bureau the postal savings system of the Posts and Telecommunications Ministry and the Japan welfare annuity of the Ministry of Health and Welfare the sources said

These ministries are trying to determine which market rates should be considered when setting the bureaus deposit rate the ministry sources said

Coupon rates on new 10year government bonds minus 01 percentage points is the likeliest choice they added