Benchmark yen interbank rates edged lower on Wednesday after Japan's intervention in foreign exchange markets looked set to boost yen liquidity, but analysts said the move would only have a limited impact on short-dated rates. The dollar rose more than 3 percent against the yen as Japan intervened to weaken its currency for the first time in six years to aid exporters and help combat deflation.
The Bank of Japan was ready to leave the funds that went into the market unsterilised, sources said. Without draining yen funds, the intervention would inject liquidity, which typically surpresses interbank borrowing costs. Three-month yen Libor nudged lower to 0.22750 percent, continuing a broad seen throughout the third quarter of the year. Three-month euro Libor rose to 0.82813 percent, although traders cited little fundamental reason behind the rise, while the equivalent Euribor rate nudged lower to 0.876 percent.
Euro zone money market rates are seen on a downward path as the effect of extended liquidity provision from the ECB dampens the impact of stress caused by pockets of weakness in the eurozone banking sector. The European repo market grew to a record 7 trillion euros by June 2010, survey data released International Capital Market Association (ICMA) showed. The value of outstanding repo contracts at 52 institutions on June 9 grew by 25 percent from levels seen six months earlier and showed the market was larger than its previous high before the 2008 financial crisis. The survey also highlighted a broad underlying shift towards the use of central clearing counterparties (CCPs) for repo business. Of the surveyed trade, 22.4 percent was cleared via CCPs.
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