The Ministry of Finance (MOF) in Japan is considering the issue of 5 to 6 year fixed-rate retail JGBs from the beginning of 2005. If issued, total sales of retail JGBs, combined with those of the already-launched 10-year floating-rate retail JGBs, could reach several trillion yen per year. The MOF is keen to find additional sources of liquidity for its expanding volume of debt issuance, since it expects to issue Yen 160 trillion of JGBs in fiscal 2004, starting on 1 April.
The news, reported in the Japanese press, comes as the April 2005 date for implementation of the “pay-off system” – by which depositors are guaranteed up to Yen 10 million plus interest tax free out of bank deposits – looms, making large sums available for reinvestment in JGBs. But there are concerns a flood of cash into JGBS will damage the equity market. Retail investors currently hold just 2% of JGBs in Japan, a low level by comparison with the United States or United Kingdom.
“Serious discussion on such bonds, let alone whether non-resident investors would be eligible to invest in them, are yet to start,” says a spokesman for Bank of Tokyo Mitsubishi (BTM) in Tokyo. “However, it is worth noting that foreign individual investors can buy the current JGBs for individual investors, but they cannot hold them through FIPs, which forces the to hold the assets in accounts maintained by the brokers or banks.”