BOJ Rate-Cut Speculation Jumps

Speculation the Bank of Japan will cut interest rates for the first time in seven years jumped after the Nikkei newspaper reported that the central bank may halve its target rate this we, 10/29/2008 1:28:25 AM

The chance that the central bank will lower the benchmark 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 citing any sources. The bank came under pressure to cut rates after the yen surged to a 13-year high, driving the stock market to its lowest since 1982. The policy board will make its decision taking market moves into account, the Nikkei said.

Japan's stocks surged a second day as speculation for a rate cut spurred the steepest drop in the yen in three decades, boosting earnings prospects for makers of cars and electronics.

Even with the yen's losses and the stock-market rally since yesterday, the policy board would be hard-pressed to pass on a rate cut this week because investors are expecting one and the government wants the bank to work with overseas counterparts to alleviate market turmoil, economists said.

BOJ Rate-Cut Speculation Jumps