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.
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| 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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