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Purchase of Foreign Securities from Foreign Exchange Fund Special Account with Resale Clause

(Unofficial Provisional Translation)
Readers are required to refer to the original Japanese text before quoting from this document.

December 26, 2003
Bank of Japan

  1. In response to a request of the Ministry of Finance, the Bank of Japan has discussed with the Ministry a possible BOJ purchase of foreign securities held by the Foreign Exchange Fund Special Account (FEFSA), with a view to financing yen for FEFSA.Today an agreement has been reached upon the guidelines attached.
  2. Under the guidelines, the Bank of Japan will purchase foreign securities held by FEFSA with a resale agreement, when the Ministry recognizes that FEFSA has virtually exhausted room for short-term borrowing under budgetary limitations, and then requests the Bank of Japan for buying operations as indispensable but temporary means of finance until other means become available to FEFSA.
  3. In the present economic and financial circumstances, the Bank of Japan believes that it is appropriate to provide FEFSA with yen funds necessary for the government of Japan to deal flexibly with movements in foreign exchange markets.In order to secure sound financial relationship between the central bank and the government, this purchase is limited to 10 trillion yen, and will be terminated by the end of March 2004.

Attachment

Guidelines for Bank of Japan Purchase of Foreign Securities
from Foreign Exchange Fund Special Account with Resale Clause

1. Purchase

The Bank of Japan can purchase foreign securities held by Foreign Exchange Fund Special Account, thereafter, FEFSA, with a resale clause, when the Ministry recognizes FEFSA has virtually exhausted room for short-term borrowing under budgetary limitations, and requests the Bank of Japan for purchase operations as indispensable but temporary means of finance until FEFSA becomes accessible to means other than its sales of foreign securities to the Bank of Japan.

2. Limits on the Outstanding Amount Purchased by BOJ

10 trillion yen.

3. Resale Clause

Upon the purchase, the Bank of Japan sets the conditions that it will sell the securities back to FEFSA on a certain date within three months after the following day of the purchase.If the resale date has originally been set on or before March 31, 2004, the final resale date can be postponed for no longer than three months after the day following the original resale date.

4. Resale before Original Resale Date

Regardless of the above, the resale will be done as soon as possible after FEFSA becomes able to finance its operations by any other means.

5. Type of Securities

United States Treasury Notes

6. Purchase Price

The purchase price shall be calculated on the basis of the market value of the foreign securities in U.S. dollar terms multiplied by the Basic Rate of Foreign Exchange applied at the time of purchase.

7. Resale Price

The resale price shall be the sum of the purchase price and an additional amount based on the length of time from purchase date to resale date. The additional amount will be calculated on the basis of differences between the average bid price and its redemption price in the most recent public auction of Financing Bills (FB).

8. Purchase Periods

The Bank of Japan may engage itself in this type of purchase until March 31, 2004.The Bank will, however, stop purchasing if FEFSA becomes able to finance its operations by any means other than sales of foreign securities to the Bank of Japan.