Benchmark Japanese yen interbank rates jumped by the most in a day on Tuesday, reflecting rising counterparty risks as a deepening nuclear crisis in quake-hit Japan fuelled risk aversion globally. Some analysts said they expected yen interbank rates to grind higher but at a slower pace after the Bank of Japan offered to pump 5 trillion yen ($61 billion) into the banking system on Tuesday.
This followed a record injection of 15 trillion yen in same-day market operations and eased monetary policy further to support the economy recover from a triple blow of a massive earthquake, tsunami and nuclear emergency. While euroyen futures edged higher after the BoJ moves, three-month yen Libor fixed up at 0.20000 percent from 0.19250 percent, its highest since mid-October.
Signs of dollar strains in the Japanese market were largely muted for now with the gap of 3-month Tokyo interbank offered rate over yen LIBOR largely steady around 0.14 bps. This spread was at a record 20 bps in the aftermath of the 2008 global financial crisis. In the euro zone, interest rate futures rallied, pushing their implied yields lower as traders scaled back how aggressively the European Central Bank will raise official borrowing costs as Japan's disaster and the Middle East conflict clouded the outlook for global growth. Euribor futures were up three to 15 basis points across the 2011/2012 strip, with the sharpest moves at the back end of the curve.