(Bloomberg) -- Overnight yen borrowing costs have fallen to the lowest in more than six years, as a profitable arbitrage opportunity for Japanese lenders dried up due to the scaling back of central bank stimulus measures for Covid-battered businesses.

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The rate dropped to around minus 0.08% on Tuesday, the lowest since April 2016, according to central bank data. It was as high as minus 0.004% in March as lenders rushed to borrow money to profit from a support program for firms struggling from the pandemic.

Lenders had been able to borrow funds at the overnight rate in the interbank market and deposit them with the Bank of Japan, without being hit by its standard minus 0.10% rate. The central bank had agreed to waive negative rates on certain deposits if the funds were ultimately lent out to Covid-hit customers.

The BOJ removed this incentive in April as Japan proceeded to open up its economy from pandemic-era restrictions.

"A decreased balance of Covid operations is the main driver of the falling overnight interest rate," said Naomi Muguruma, chief fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. "Demand for funding in this market has dropped because of reduced arbitrage trading."

The outstanding amount of the BOJ's pandemic funding operation peaked at 86.8 trillion yen ($626 billion) in March but has tumbled 88% since then.

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