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Purchase of SME-related ABS by theBank of Japan: Monetary Policy and SME financing in Japan*1

October 2003
Hideaki Hirata *2
Tokiko Shimizu *3

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  • *1 The opinions expressed do not necessarily reflect those of the Bank of Japan. The authors thank Kenji Nishizaki (Bank of Japan), Yasunari Inamura (Bank of Japan), and Ken Taniguchi (Bank of Japan) for helpful comments and suggestions.
  • *2 Financial Markets Department, Bank of Japan, e-mail:
  • *3 Financial Markets Department, Bank of Japan, e-mail:


The BOJ recently announced its intention to purchase asset backed securities (ABS) whose underlying assets are closely related to SME economic activities.1 One important motivation for this policy arises from the idea that utilizing modern financial tools, i.e., securitization, can be a possible way to solve the overconcentration or excess accumulation of credit risks in the banking sector, albeit it would be a rare move for central banks to buy private debt. The outright purchase is expected to restore the monetary transmission mechanism by helping diversify credit risks in the financial sector among other economic agents including the BOJ.

The other motivation of the new policy is to increase fundraising options for SMEs. For example, the BOJ will purchase ABS backed by accounts receivable. The use of accounts receivable as collateral is not a popular fundraising method for SMEs in Japan. SMEs can take advantage of the BOJ's policy to utilize quality assets which have not been effectively used as collateral in the past. SME external financial sources can be multi-tracked, thereby reducing their heavy reliance upon traditional financial intermediation. Thus, through the implementation of "traditional" monetary policy tools to purchase "untraditional" financial assets, the policy is expected to strengthen the monetary transmission mechanism.

The spirit of this policy is to effectively improve SME access to financing through accelerating the development of ABS markets, without causing distortions in the ABS markets. The scheme is carefully designed to avoid any moral hazards and to contribute to the removal of obstacles to SME financing through enhancing financial disintermediation.

  1. Hereafter, we use ABS as both asset backed securities and asset backed commercial papers, unless otherwise mentioned.