Japan Rate Cut Seen as Minor

TOKYO - Japan's magnificent obsession with its official discount rate may have proven overdone.

Financial markets had speculated about a cut in the rate at which the central bank lends to banks ever since the Bank of Japan reduced that rate to 5.5% July 1. And some investors were speculating about the next cut even as the central bank made another half-point cut Thursday.

Market Moved Sooner

But with the official lending rate increasingly a symbol that lags behind changes in market rates, many economists said the main impact of the most recent cut was likely to be psychological.

"Market rates were already down substantially. In effect, we already had the rate cut two months ago," said Robert Zielinski, financial analyst at Jardine Fleming Securities Ltd.

Ammunition for Borrowers

The official rates cut should give companies added ammunition in their struggle with banks, which have dragged their feet on loan-rate cuts despite declines in their cost of funds as a result of lower market rates.

"It puts pressure on the banks to cut lending rates," Mr. Zielinski said.

But with banks already obtaining about three-fourths of their funds at market rates, due to interest rate liberalization, the discount rate cut will have less impact on lending rates than usual, observers said.

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