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November 25, 2016
Financial Markets Department
Bank of Japan
The Financial Markets Department of the Bank of Japan (the Bank) has conducted the Tokyo Money Market Survey since 2008 to understand developments in the Japanese money market. Initially, this series of surveys was conducted every other year. However, to observe market trends more precisely, the Bank decided to conduct the survey annually beginning with the 2013 survey. In August 2016, the seventh survey in the series was carried out (the survey was conducted as of end of July 2016).
As with the previous surveys, this survey covers all eligible counterparties in the Bank's money market operations, as well as other major participants in the money market. The number of respondents in the survey was 300 (with a response rate of 100 percent), up from 298 in the 2015 survey, due to a rise in the number of eligible counterparties in the Bank's money market operations.
The Bank intends to capture comprehensively and from various angles the situations and structural changes in the money market, utilizing the results of this survey as well as the results of the Bond Market Survey. The Bank will continue to enhance a dialogue with market participants by taking advantage of the Meeting on Market Operations and the Bond Market Group to actively support the relevant parties in their efforts to enhance the Japanese financial markets, including the money market. The Bank intends to contribute significantly to such endeavors in its capacity as Japan's central bank.
The amounts outstanding in the money market decreased from the levels of the previous year on both the cash borrowing side and the cash lending side. However, the amount outstanding on the cash borrowing side remained at a high level, exceeding the levels observed between 2009 and 2013.
The decrease on the cash borrowing side can be attributed to (1) the decline in call transactions, particularly collateralized call transactions, consequent to interest rates falling into negative territory and (2) the decline in funding through CDs and CPs, whose issuance rates were hovering at around 0 percent, amid the difficulties in investing money at positive rates. On the cash lending side, in addition to the decline in call transactions, investments in treasury discount bills (T-Bills) also decreased.
Meanwhile, repo transactions expanded their market size due to the fact that general collateral (GC) repos functioned as substitutes for call transactions and that repo transactions were preferred in arbitrage trading using unused allowances in the macro add-on balance or the basic balance of current account deposits at the Bank.
With respect to the functioning of the money market, the share of respondents who answered that it had "declined" increased to about 60 percent. This increase was due to interest rates in the money market falling into negative territory and to difficulties experienced in executing transactions in desired volumes. On the other hand, the share of respondents who answered that the functioning of the money market had "improved" increased to about 10 percent, reflecting an increase in the new type of arbitrage trading using unused allowances in the macro add-on balance or the basic balance at the Bank.
The Bank intends to continue to observe closely the developments in the money market through day-to-day monitoring activities, implementation of the Tokyo Money Market Survey, and a dialogue with market participants.
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Financial Markets Department, Bank of Japan
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