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Revision of Japan's Flow of Funds Accounts Statistics

June 18 1999
Bank of Japan
Research and Statistics Department

Click on ntsj01.pdf (42KB) to download the Appendix.

The Research and Statistics Department has made major revisions to the flow of funds accounts statistics (hereafter FFA), which are released once every quarter. We will release data on a new basis (to be released on July 1, 1999) from the first quarter of 1999 (hereafter, the new FFA). In line with this revision, we will discontinue the release of the statistics on the previous basis (hereafter, the old FFA).

1. Background to the Revision

The FFA were first compiled in 1958 as financial statistics providing an overall picture of the movement of funds and the financial claim-liability relationships among various economic entities such as companies, households, and central and local governments. The FFA was revised in 1978 to reflect the System of National Accounts established in 1968 by the United Nations. Since the revision of 1978, the framework of the FFA has remained unchanged.

Although significant changes in the financial system and structure have taken place, those changes were not adequately reflected in the old FFA. This has caused the following three problems.

(1) The old FFA did not entirely incorporate the activities of nondepository financial institutions such as pension funds and nonbanks or new types of financial instruments such as derivatives and structured-financing products.

(2) The sectoral classification in the nonfinancial sector differed from that in the national accounts. As a result, the old FFA did not ideally serve the purpose of facilitating monitoring of the relationship with the real economy.

(3) Financial institutions were classified based on a financial system unique to Japan, attaching importance to the distinction between public and private financial institutions. Thus, it was not easy to compare Japan's FFA data with those of other countries.

Against the background of changes in the financial and economic structure, the Statistical Commission under the Economic and Social Council of the United Nations revised the SNA in 1993 (1993 SNA). Furthermore, the International Monetary Fund (IMF) has started to compile a manual on internationally standardized financial statistics (Manual on Monetary and Financial Statistics; hereafter, IMF Manual).

With a highly reliable FFA, changes in the financial structure can be grasped and the roles of each economic sector can be examined. Furthermore, the influences of these factors on the real economy can be considered. Such statistics are also useful in considering the various issues concerning financial systems. Therefore, the Bank of Japan determined that a historical revision of the FFA was imperative. Until now, works toward revising the FFA have been in progress reflecting the recommendations in the 1993 SNA and the IMF Manual.

This time, the revision will conform to these international standards as well as to Japan's National Accounts statistics and Balance of Payments statistics. The new framework also puts emphasis on economic functions and economic substance, and provides sub-classifications of economic entities ("economic sector") and financial products ("transaction items") whenever possible. In this manner, we will be able to provide useful statistics better reflecting the financial system and structure of today.

2. Outline of the Revision

(1) Revision of the "economic sector" (refer to appendix1)

The sectoral classification of the old FFA was based on the financial system unique to Japan. For example, financial institutions were classified based on their legal status as public or private entities and their business status. The new statistics have been changed substantially by emphasizing economic functions and economic substance. Moreover, the "economic sector" is subdivided so as to improve the consistency with the National Accounts statistics and the Balance of Payments statistics (old FFA : 21 sectors -->new FFA : 46 sectors).

Major changes:

1-1 Financial sector (to trace the financial intermediation of nondepository financial institutions)

In the old FFA, financial institutions were classified into public or private institutions and further classified according to their business status. The new FFA, however, focuses on the functions of financial institutions in categorizing them into financial intermediaries and other institutions and in sub-classifying financial intermediaries. As a result, users can trace the financial intermediation not only of conventional depository corporations but also of nondepository financial institutions such as "Insurance and pension funds," and "Other financial intermediaries".

<Sectoral classification of trust accounts according to the fund management activities>

In the old FFA, trust accounts were classified into one "economic sector." In the new FFA, trust accounts managed by trust banks are classified into depository corporations as "Collectively managed trusts". On the other hand, trust accounts that trust banks do not manage but for which they act as passive agents of pension funds, securities investment trust management companies, etc. are consolidated with the figures for pension funds, and securities investment trust management companies, etc.

<New sector established for "Nonbanks">

In the new FFA, an independent sector for "Nonbanks" is established in the "Other financial intermediaries" category. This reflects the increase in the Nonbanks' functions as financial intermediaries.

1-2 Nonfinancial sector

In order to improve the consistency with the National Accounts statistics, sectoral classifications in the nonfinancial sector are totally based on the "institutional sectors" of the National Accounts. New subcategories, which are more detailed compared to the old FFA, are established for "Public nonfinancial corporations," "Social security funds," and "Private nonprofit institutions serving households. " In the old FFA, the "Personal" sector included private nonprofit institutions serving households, but these comprise an independent sector in the new FFA. The other areas are recognized as "Households" in the same way as in the National Accounts statistics. These changes enable better tracking of the movements of public corporations and non-profit organizations.

2-2 Revision of "transaction items" (please refer to appendix 2)

In the old FFA, transaction categories were based mainly on conventional financial products. The new FFA establishes new transaction items such as "Financial derivatives" to incorporate recently released financial instruments (old FFA: 40 items -->new FFA: 51 items). The scope of conventional transactions such as loans and securities is also revised in accordance with the economic substance.

Major changes:

2-1 New item: "Financial derivatives"

Financial derivatives, which were not included in the old FFA, comprise an independent transaction item in the new FFA. Holding gains/losses of forward-type instruments, and option premiums are recorded in the "Financial assets and liabilities" table and the cash transfers of option premiums are recorded in the "Financial transactions" table.

2-2 New item: "Repurchase agreements and securities lending transactions" and "Installment credit" as sub-classifications of "Loans"

In the old FFA, transactions that were classified as "Loans" were limited to conventional loan agreements. In the new FFA, however, "Repurchase agreements and securities lending transactions" and "Installment credit" are included as new sub-classifications in "Lending. The former instruments are used for fund raising and investment, while the latter functions in the same way as conventional loan agreements.

2-3 New item: "Structured-financing instruments" in "Securities other than shares".

In the old FFA, "Securities" covered stocks and bonds such as government bonds. The new FFA adds a new subcategory of "Structured-financing instruments" in "Securities other than shares." Since the liquidation of various types of financial assets has become active, issues of securitized instruments that have the characteristics of securities have increased. Included in "Structured-financing instruments" are asset-backed securities, the right of beneficiary for monetary claim trusts, and small-lot claims relating to the liquidation of lease and credit claims.

(3) Recording on both the asset side and the liability side

In the new statistics, the economic sectors and transaction items are substantially revised, as mentioned above. We are adopting the "building block approach" method by subdividing units in detail so that users are able to rearrange the economic sectors and transaction items according to their needs. Since users need whole unit data for the "building block approach", in the new FFA, data are recorded on both the asset side and the liability side instead of netting out asset-side and liability-side data in each sector and transaction item. In the old FFA, data were recorded on a net basis for some items such as deposits and loans, which may result in a jump of data, particularly in the financial institutions sector.

(4) Mark-to-market valuation and accrual accounting: new statistical table of "Reconciliation between flows and stocks."

In order to reflect the economic substance and functions adequately, the new FFA adopts mark-to-market valuation. This method evaluates financial assets and liabilities by their market value or actual value. In addition, the new FFA adopts accrual accounting, which is conducted by recording the transactions and changes in assets and liabilities not at the time when cash is transferred (on a cash basis) but at the time when transactions take place or changes in assets/liabilities occur.1 There is an inconsistency between the transaction amounts recorded in the "Financial transactions" table and the changes in stocks recorded in the "Financial assets and liabilities" table in the mark-to-market valuation. Therefore, the new FFA includes a new table of "Reconciliation between flows and stocks " in addition to these two conventional tables, to record the inconsistencies.

<Relation between flow and stock>

Outstanding of T=
Outstanding of T-1+ Financial transactions amounts of T+ Reconciliation amounts of T

Here, reconciliation amounts generally mean the changes in market value.

  1. In the old statistics, stocks (stocks of listed companies and OTC registered stocks) were evaluated on a mark-to-market basis. Other instruments were not evaluated on a mark-to-market basis, and transactions were recorded on a cash basis

Major changes:

4-1. Mark-to-market valuation of bonds

In the old FFA, stocks were evaluated on a market-to-market basis. In the new FFA, financial instruments that have market prices such as bonds and debentures are also evaluated on a mark-to-market basis. Nevertheless, as it is impossible to specify the market prices of each bond of each investor, the market value of bonds and debentures is estimated by multiplying the market price index by the face value.

4-2. Actual value of loans

Evaluation of loans is not straightforward. However, the increase of non-performing loans indicates accumulative asset devaluation. Hence, the new FFA records the actual value of loans by deducting allowances for doubtful debts from the contract amounts.

3. Historical data of the FFA

As for the retroactive data of the new FFA, we will release the quarterly figures back to the figures for the end of December 1997 (figures for flow will be from the first quarter of 1998) on July 1 1999. We will not release quarterly figures for periods prior to the above.

Annual figures of major sectors and transaction items will be released retroactively from fiscal 1990 for 9 fiscal years. We are preparing to release these figures sometime during fiscal 1999.