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Study of the Introduction of a Facility to Enhance Liquidity of Japanese Government Securities Markets

February 26, 2004
Bank of Japan

At the Monetary Policy Meeting (MPM) held today, Policy Board members discussed the possibility of introducing a facility which provides Japanese government securities held by the Bank to the markets (the so-called securities lending), with a view to enhancing liquidity and maintaining the smooth functioning of government securities markets.

In government securities markets, liquidity may decline and pricing may be hampered occasionally when market participants experience difficulties in securing specific issues or face uncertainties over their availability. In such cases, market participants should strive to maintain market liquidity and to avert a negative impact on the markets. Furthermore, in many industrialized countries, central banks and other public authorities offer securities lending facilities as a secondary source of government securities to the markets.

At the MPM today, views were expressed that the Bank could contribute to enhancing liquidity and maintaining the smooth functioning of government securities markets through introducing a facility which provides a temporary and secondary source of government securities to the markets.

The Chairman instructed the Bank staff to study the introduction of such a facility and report back to the MPM promptly.