Foreign Currency Funding Challenges
for Japanese Banks
Hitotsubashi University and the IMF Joint Seminar
on the Future of International Monetary System for Asia
March 8, 2017
Shigeto Nagai
Bank of Japan
Japanese banks go global
International claims from each country's FIs
<All countries>
tril. USD
1.6
tril. USD
5
Japan
U.S.
4
<U.S.>
Germany
France
Switzerland
U.K.
3
1.4
1.2
1.0
Japan
U.K.
Germany
France
Switzerland
0.8
0.6
0.4
0.2
0.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
<Asia and Pacific>
tril. USD
2
1.2
1.0
0.8
1
0.6
Japan
U.S.
U.K.
Germany
France
Switzerland
0.4
0.2
0.0
0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Notes: 1. The latest data are as of end-September 2016.
2. For Germany and France, claims on euro area are excluded.
Source: BIS, "Consolidated banking statistics."
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
1
Gradually restoring its presence in global banking
Banking system centrality
Note: The graph shows each country's importance in the network measured by the eigenvector centrality, which captures how
connected the country is by giving a higher weight to connections to more connected counterparties in terms of bank credit.
Source: IMF (2016), "Adequacy of the Global Financial Safety Net."
2
Foreign currency funding by Japanese banks
Structure of foreign currency funding and investments by major Japanese banks
<Investments>
<Funding>
Other investments
bil. USD
FX swaps and currency swaps
2,000
Interbank investments
Securities
1,800
Loans
1,600
1,400
1,200
1,000
800
600
400
200
0
14/9 14/12 15/3 15/6 15/9 15/12 16/3 16/6
Stability gap among
major Japanese banks
900
bil. USD
Resilience to foreign currency liquidity
stress among major Japanese banks
600
Corporate bonds, etc.
800
Other funding
bil. USD FX swaps and currency swaps
2,000
Interbank funding
Repos
1,800
Client-related deposits
1,600
1,400
1,200
1,000
800
600
400
200
0
14/9 14/12 15/3 15/6 15/9 15/12 16/3 16/6
700
Medium- to long-term FX
swaps and currency swaps
Client-related deposits
600
Loans
bil. USD
500
Stability
gap
400
500
300
400
300
200
200
100
100
0
0
10
11
12
13
14
15
16
Note: The latest data are as of end-August 2016.
Source: BOJ, Financial System Report, October 2016.
10
11
12
13
14
15
16
FX swaps and currency swaps maturing within 1 month
Interbank funding maturing within 1 month
Repos maturing within 1 month
Foreign currency liquidity
3
FX swap implied USD funding rates and banks’ creditworthiness
FX swap implied USD funding rates
（Deviation from USD LIBOR）
Non-U.S. banks' default probability
(Expected Default Frequency)
Notes: 1. The latest data are as of November 2016.
2. The shaded areas correspond to Japan's financial crisis (November 1997 through March 1999), the global financial crisis
(December 2007 through June 2009), and the Eurozone sovereign debt crisis (May 2011 through June 2012).
3. Non-U.S. banks' default probability is the average of the EDF (Expected Default Frequency) of G-SIBs that are headquartered
in each jurisdiction. "Japan Premium" is calculated as 3-month USD TIBOR less 3-month USD LIBOR.
4
Sources: Bloomberg; Moody's; BOJ.
Outward portfolio investment (Euro area and Japan)
Euro area
200
Japan
15
bil. EUR
tril. JPY
Outward portfolio investment
Outward portfolio investment
to United States
to other countries
150
to United States
to other countries
10
100
5
50
0
▲
▲
FRB
rate hike
0
▲
▲
▲
-5
▲
FRB
tapering
FRB
rate hike
FRB
tapering
-10
-50
ECB monetary easing
▼ ▼ ▼▼ ▼ ▼▼
-100
09
10
11
12
13
14
15
16
QQE with YCC
BOJ monetary easing
▼
▼
-15
09
10
11
12
13
14
15
▼ ▼▼
16
Notes: 1. The latest data are as of end-September 2016.
2. In each chart, ▲/▼ indicates the timing and direction of monetary policy changes since 2013.
Sources: ECB; Ministry of Finance; BOJ.
5
Prime MMF holdings of bank related securities
(Bank nationality)
Switzerland
Netherlands
0
Germany
0
United Kingdom
20
Australia
20
Sweden
40
(Bank nationality)
40
Switzerland
60
Netherlands
60
Germany
80
United Kingdom
80
Australia
100
Sweden
100
France
120
Canada
120
United States
140
Japan
140
bil. USD
Japan
160
France
bil. USD
United States
160
As of end-October 2016
Canada
As of end-June 2016
Note: Prime MMF holdings of bank related securities are aggregated by country based on the location of banks' global headquarters.
"Australia" includes New Zealand.
Source: SEC.
6
Amount of foreign currency funding and FX swap transaction volume
Amount of foreign currency funding
via FX swaps and currency swaps
by Japanese financial institutions
1,300
bil. USD
Transaction volume
in the FX swap market (USD/JPY)
via Tokyo FX market brokers
70
bil. USD
Major banks and institutional
investors, etc.
1,200
Including regional financial
institutions
1,100
60
1,000
50
900
800
40
700
600
30
500
10
11
12
13
14
15
16
Notes: 1. Estimates by the BOJ. The latest data are as of end-September 2016.
The data are taken from fiscal year.
2. "Major banks and institutional investors, etc." includes major banks,
depository institutions with a particular focus on market investment,
and life insurance companies.
Sources: Bloomberg; The Life Insurance Association of Japan; Published
accounts of each company; BOJ.
10
11
12
13
14
15
16
Notes: 1. The latest data are as of September 2016.
2. Average transaction volume for each business day (includes
outright forwards).
3. Trends are calculated using the two-sided HP filter.
Source: BOJ.
7
Japanese financial institutions’ outward investments in
foreign securities
140
tril. JPY
Banks (depository corporations)
Insurance and pension funds
120
Insurance and pension funds (including public pensions)
Securities investment trusts
100
80
60
40
20
0
98
00
02
04
06
08
10
12
14
16
Notes: 1. The latest data are as of end-September 2016.
2. The amounts are calculated by adding the flow during each period to the stock as of end-December 1997, to adjust for the
impact of exchange rate fluctuations.
Source: BOJ.
8
Increasing need for local currency funding
Increasing share of local currencydenominated loans
700
%
bil. USD
Local currency-denominated claims
USD-denominated claims
600
loan-to-deposit ratio, %
50
400
45
Share of local currency-denominated
claims (right scale)
500
Loans outstanding and loan-todeposit ratio by currency
40
400
New Zealand dollar
300
Indonesia rupiah
Australian
dollar
35
Taiwan dollar
200
300
30
200
25
100
20
0
15
Hong Kong
dollar
Korean won
100
Singapore dollar
Thai baht
05
06
07
08
09
10
11
12
13
14
15
16
Renminbi
0
0
5
10
15
20
25
30
loans, bil. USD
Notes: 1. "USD-denominated claims" include claims denominated
by foreign currencies other than local currencies.
2. The latest data are as of end-September 2016.
Notes: 1. The data are the total of loans by five major banks.
2. The data are as of end-September 2015.
Source: BIS, "Consolidated banking statistics."
Source: BOJ, Financial System Report, April 2016.
9
Cross-border collateral arrangements (CBCA)
Japan
Overseas
Safe custody
agreement
Overseas
central bank
Bank of Japan
Account of
overseas central
bank
JPY-denominated
collateral
Local currency
Overseas branch of
Japanese bank
Counterparts
Bank of Thailand
(BOT)
Monetary Authority of Singapore
(MAS)
Bangko Sentral ng Pilipinas
(BSP)
Bank Indonesia
(BI)
Japanese bank
Dates of agreement
Nov. 2011
Jul. 2013
Feb. 2015
Dec. 2013
Eligible collaterals
JGBs,
JPY cash (since May 2012)
JGBs,
JPY cash (since May 2015)
JPY cash
(since Aug. 2016)
JGBs
(in preparation)
Note: This slide shows how overseas central banks allow banks operating in that country to access local currency liquidity against
their JGBs or Japanese Yen holdings in case of emergency or liquidity shortage.
10
Swap arrangements for financial system stability
Bilateral local currency swap agreement with the Reserve Bank of Australia
Japan
Local currency swap
Australia
Reserve Bank of
Australia
AUD
Bank of Japan
JPY
AUD
Australian
bank A
JPY
Japanese
bank B
AUD
Australian
bank C
JPY
Japanese
bank D
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Thank you for your attention.
Views expressed in this presentation are personal views
and do not necessarily reflect those of the Bank.
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