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By Hiroshi Inoue
TOKYO (MNI) - The Bank of Japan is considering increasing the types of
eligible collateral that commercial banks can hold at the central bank, with the
hope they can reduce their reserve holdings of government bonds and help boost
the functioning of the JGB market as they recirculate, MNI understands.
Commercial banks have to leave a certain amount of collateral at the
central bank for daily financial transactions and government bonds have long
been seen as the most convenient to hold. Along with BOJ bond holdings, those
obligations have hampered liquidity levels in the JGB market.
However, banks are struggling to leave the necessary level of JGBs against
reserves as their bond holdings have fallen sharply in the wake of the large
purchases by the BOJ.
The BOJ is now considering introducing additional eligible collateral in
order to make it easier for commercial banks to meet their requirements. In
December 2015, the BOJ added mortgage loans as acceptable collateral, which has
already somewhat helped banks.
The BOJ already accepts various loans on deeds -- such as those to
companies, the government and municipal governments, providing the instrument
has a credit rating of single 'A' or higher -- as eligible collateral and is
looking to accept other loans on deeds.
If commercial banks' duty of gathering and leaving eligible government
bonds at the BOJ drops, volume of circulating JGBs in the secondary market
increases, which in turn will contribute to increasing the functioning in bond
--BOND HOLDINGS HALVED
The share of government bonds held directly by the BOJ increased to 42.99%
at the end of December 2018, up sharply from 15.31% at the end of June 2013,
boosted by the introduction of quantitative and qualitative easing (QQE) in
That has had the effect of pushing the share of JGB holdings by commercial
banks to 15.07% at the end of December, down more than half from 35.65% at the
end of June 2013.
As of February 28, the total eligible collateral held by the BOJ was Y91.83
trillion against Y110.36 trillion at the end of April 2013.
The total of government bonds held by commercial banks fell to Y22.65
trillion, or 25% of the total collateral, at the end of February from Y75.45
trillion, or 68% of the total collaterals, at the end of April 2013.
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