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(Reference)Accepting Cash as Collateral for the Purchase/Sale of Japanese Government Securities with Repurchase Agreements

February 5, 2004
Bank of Japan

1. Outline

The Bank decided to accept cash as collateral in response to the margin call for the Bank's purchase/sale of Japanese government securities (JGSs) with repurchase agreements. Currently, the collateral is limited to JGSs.

  • The Bank made the decision in light of the market practice to use cash as collateral for purchase/sale of JGSs with repurchase agreements, and to facilitate the Bank's money market operations.
  • The Bank shall pay interest on cash collateral.

2. Interest on cash collateral

  • The interest shall be paid only on the amount of cash necessary to cover the net exposure borne by the Bank. The interest rate shall be set, in accordance with the market practice, by subtracting certain percentage from uncollateralized overnight call rate on the day. It can not be negative.
    -- Given the current level of uncollateralized overnight call rate, the interest rate is likely to be zero percent.

3. Schedule

  • This amendment is scheduled to become effective on April 12, 2004.