UPDATE 2-MUFG bank system set to stop as main dealer for shrinking JGB market

* Move comes as banks lower JGB holdings * Long-term ramifications for JGB demand are worrying –
expert * Competing SMFG’s core system says it not considering such a move * Mizuho states nothing has been picked main dealership

( Recasts and composes through with source and expert remarks) By Taiga Uranaka TOKYO, June 8 The core bank unit of Mitsubishi
UFJ Financial Group stated it may withdraw as a main
dealership for Japanese government bonds – the clearest sign yet
that the country’s loan providers are shifting away from the marketplace due
to the reserve bank’s unfavorable rate of interest policy. The device, one of 22 main dealers, is anticipated to quit
its status in July, included a source with direct knowledge of the

The relocation is not expected to have an immediate impact on the
JGB market as the reserve bank is aggressively buying the bonds
as part of its financial policy, however some market watchers stated
the long-lasting implications for need were worrying. “We may deal with a huge threat when the BOJ no more buys JGBs
as much when there are less financial institutions
taking part in the bond market,” Hidenori Suezawa, financial
market and financial expert at SMBC Nikko Securities. He included that other financial institutions, specifically
foreign firms, could do the same.

Japanese banks have significantly minimized their JGB holdings
considering that Bank of Japan Guv Haruhiko Kuroda embarked on bold
financial stimulus measures in 2013. The adoption of a negative
interest rate in February has pressed yields on most JGBs below
absolutely no, even more reducing the reasoning for lenders to purchase the
sovereign bonds. “We are not sure about the wisdom of keeping our primary
dealer status when we are lowering JGB holdings,” included a senior
authorities at the core banking device, Bank of Tokyo-Mitsubishi UFJ
( BTMU). Sources declined to be recognized as they were not
authorised to talk to the media. A MUFG spokesperson verified
that the banking device was considering the relocation but decreased to
comment even more.

In exchange for special access to meetings with Ministry
of Finance officials, primary dealers have to bid for a minimum of 4
percent of JGBs at every auction. MUFG has 2 brokerage devices which are also primary dealerships.
They prepare to maintain their status, a different source at MUFG
stated. MUFG held 28 trillion yen ($ 260 billion) of JGBs at the end
of March in 2012, below nearly 50 trillion yen 3 years
earlier. Competing Sumitomo Mitsui Financial Group said that its
core bank was not considering quiting its main dealer
status while a spokesperson for Mizuho Financial Group
said absolutely nothing has been decided. Primary dealerships are a group of choose financial institutions
in a plan developed to make sure the stability and liquidity of
the JGB market. The Japanese federal government raises about 150
trillion yen each year by issuing bonds to private-sector
($ 1 = 106.9300 yen).

( Reporting by Taiga Uranaka; Extra reporting by Leika.
Kihara; Editing by Edwina Gibbs).

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