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Tuesday, September 24, 2019

Handbook on Japanese Government Bonds JGB Operations, Importance and South East Asian Crisis of 1990


Handbook on JGB

The Japanese government bond (JGB) market, with US$6.0 trillion of outstanding issues is the largest sovereign debt market in the world. But the e-bond revolution, which has taken other international markets by storm, has been slow in coming to Japan. The inter-dealer market is steadily embracing electronic trading and most trading in the client-dealer market is still done by voice with less than two percent of trading occurring on a handful of electronic multi-dealer platforms. There are five stock exchanges in Japan: the Tokyo Stock Exchange, Osaka Securities Exchange, Nagoya Stock Exchange, Fukuoka Stock Exchange and Sapporo Securities Exchange.
It is expected that E-trading will rise from 35.2% of overall JGB trading in 2005 to 58% in 2009.
JGB
Japanese Government Bond Market
The total JGB issuance amount for FY2019 will be 148.7 trillion yen with a reduction of 1.2 trillion yen compared with FY2018 (initial). Taking into account an increase of sales for households, market issuance by normal auctions will also decrease by 4.8 trillion yen from that of FY2018 (initial) to 129.4 trillion yen. 
Issuance amounts by maturity type will be reduced in each zone of super-long-termü (40-, 30-, 20-Year), long-term (10-Year) and short- to medium-term (5-, 2-, 1-Year) in a well-balanced manner, based on the market needs. 
Issuance through liquidity enhancement auctions will remain at the current amount,ü considering the market circumstances. What’s New: JGBi and Liquidity Enhancement
"With Japan's economy in recovery mode, and the expected abolition of Japan's zero percent monetary policy, the JGB market will see increased volatility and trading volumes which, in turn, should make the efficiencies of e-trading more attractive.
In mid 90s action was taken to introduce E trading in a phased manner by using the international concepts of DVP, RTGS and online central bank network. Japanese securities system is moving fast from physical and book entry issuances /settlement to Securities Settlement Systems (SSS) which involves Japan Securities Depository Center (JASDEC), Japan Securities Clearing Corporation (JSCC), Japan Government Bond Clearing Corporation (JGBCC), Japan Bond Settlement Network, SWIFT, MOF, FSA, CLS, JSDA, Stock Exchanges.
Until April 1999, equity trading took place on the trading floor with brokers physically placing orders at special booths. However, now all trading is done electronically. Market information, such as quotes, contracted prices and trading volumes, is constantly transmitted to the offices of securities firms, the media and institutional investors.
Today most of the financial products are dealt in paperless form and are settled online with proper insurance coverage and risk mitigation systems and funds.
Tax/fee payers are able to make electronic payments to the government without going to a bank by logging into electronic banking services via PCs, mobile phones, and other means. They are able to pay from virtually anywhere and at any time of the day or night, and even on bank holidays by using ATMs. Japan Multi-Payment Network Management Organization (JAMMO) runs the network.
There are four major payment systems for clearing and settling interbank payments in Japan. Three clearing systems in the private sector and a funds transfer system operated by the central bank.
Ø Zengin Data Telecommunication System (Zengin System),
Ø And bill and cheque clearing systems (BCCSs),
Ø The BOJ-NET Funds Transfer System
Ø Foreign Exchange Yen Clearing System (FXYCS),
Ø RTGS to be the principal settlement mode over BOJ-NET JGB Services

As the Japanese financial system marches towards higher degree of straight through processing for funds & securities settlement and the economy starts picking up after decade of stagnation and zero interest rate policy, more and more international banks, investment banks, brokerage houses, financial institutions and investors will flock to grab dominant position in the market. One of the major supporting factor is the strengthening of the Japanese banks by infusion of fresh capital, writing off of bad loans and increased monitoring by MOF and BOJ. All this also involved mergers, consolidations and complete restructuring. The Japanese economy has been improving for more than four and a half years, and business performance has been picking up. Banks have made significant progress in disposing of NPLs and struggling firms have been on the mend. Under these circumstances, the ratio of NPLs to total credit exposure of the major banks (12 large nationwide commercial and trust banks) declined significantly to 2.9 percent at the end of fiscal 2004 from 8.7 percent at the end of fiscal 2001, after they achieved the target set by the government of halving the ratio as of the end of fiscal 2001 within three years. It continued to decline to 1.8 percent at the end of fiscal 2005. The ratio of NPLs at the regional banks (111 local commercial banks) declined to 4.6 percent at the end of fiscal 2005 from 8.1 percent at the end of fiscal 2001.

For any new entrant in the market, it is important to have online systems in place with full trading platform capabilities and interfaces with Stock Exchange systems, Bank of Japan Network (BOJ NET), Payment Systems, Swift, Custodians, Clearing Corporation, Yen FX clearing settlement for FX deals. Processes/Methods like RTGS, DVP, Book Entry, Auction (Competitive/Non Competitive), Special Market Participants- market makers (like Primary dealers), instruments, Audit and reporting are now online and needs matured platform and interfaces.
(under review and publishing)

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