MONEY MARKET IN JAPAN (VIS-A-VIS INDIA)

- Akarshi JainSemester VI

B.B.A, LL.B. (Hons.)

WHAT IS MONEY MARKET?

Financial instruments with high liquidity and very short maturities are traded

Used by participants as a means for borrowing and lending in the short term, from several days to just under a year

Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, Treasury bills, commercial paper and repurchase agreements (repos)

INTRODUCTION TO THE JAPANESE MONEY MARKET

Lehman Shock in 2008 Sharp Dip in the Money Market

operations Till 2011, stable and flat operations. Recently grown mainly due to

increase in Repo trnsactions However, still below the level prior to

2008

2007 2008 2009 2010 2011

250

200

150

100

50

Amounts Outstanding in the Money Market

CALL MARKET IN JAPAN

Significant decrease after Lehman Shock Collateralized Call Market: Increased:

a) Regional Banks shifted their funds because of preference for relatively safe environment

Uncollateralized Call Market: Sharp decrease:a) Foreign banks faced difficulties

raising fundsb) Abundance of liquidity due to

Bank of Japan’s provision of ample funds

2007 2008 2009 2010 2011

1009080

7060

5040

3020

10

40

35

30

25

20

15

10

5

Collateralized Transactions

Uncollateralized Transactions

Call Market

REPO MARKET

Continued to fall after Lehman Shock Increased Recently On the cash borrowing side, the

expansion was among securities companies

On the cash lending side, increasing for all sectors. Trust banks have the largest share.

COMMERCIAL PAPER

After Lehman Shock, the sector saw a decline.

Now, the sector is quiet stable The conditions are now improving because

of:a) BOJ’s special funds-supplying

operationsb) Comprehensive monetary easing

policy

REGULATION OF MONEY MARKET IN JAPAN

Two monetary authorities in Japan: Ministry of Finance and Bank of Japan

Unwilling to allow market forces to equilibrate demand and supply

Fear of excessively high interest rates

Japan has a very restricted money market

Market for short-term government securities is negligible

BOJ is the main buyer and open market operation are limited

Transactions in Commercial Paper are minimal

However, the Call Market is well-developed.

INDIAN MONEY MARKET

The Money Market in India is quiet developed and includes:

Treasury Bills,Commercial Paper, Certificate of Deposit,Repos, etc. The Indian Money Market mainly consists of:Unorganized Sector including moneylenders, Chit lenders, etc

Organized Sector including RBI, Private Banks, Public Sector Banks, Development Banks and Non-Banking Financial Companies. Regulation of Indian Money Market:A. RBI’s roles is confined to the

organized banking sectorB. Reforms made to deregulate the

Interest Rate by lifting the ceiling rates

C. Government has made attempts to introduce new instruments

COMPARISON BETWEEN THE TWO ECONOMIES

Instruments in the Money Market:In Japan, only the Call Market is developed. Other instruments are discouraged. In India, a wide range of instruments are available.

Players in the Money Market:In India, a wide range of participants are present in the Money Market operations. This is in complete contrast to Japanese economy.

Intervention of Monetary Authorities:In Japan, BOJ plays an active role to stabilize the interest rates by participating in the money market operations. In India, efforts are being made to reduce RBI’s intervention.

Government outlook towards the Money Market:In India, the government is taking active steps to introduce new instruments into the market and let market forces determine the interest rate. On the other hand, in Japan, stabilizing the interest rates remains the main concern of the government.

THANK YOU.

ANY QUESTIONS?