Money market in japan

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  • 1. MONEY MARKET IN JAPAN (VIS-A-VIS INDIA) Akarshi Jain Semester VI B.B.A, LL.B. (Hons.) -
  • 2. 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) 
  • 3. 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 
  • 4. Amounts Outstanding in the Money Market 250 200 150 100 50 2007 2008 2009 2010 2011
  • 5. 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) b) Foreign banks faced difficulties raising funds Abundance of liquidity due to Bank of Japan’s provision of ample funds
  • 6. Call Market 40 Collateralized Transactions 100 90 Uncollateralized Transactions 80 35 30 70 60 25 20 50 40 15 30 20 10 5 10 2007 2008 2009 2010 2011
  • 7. 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. 
  • 8. 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 operations b) Comprehensive monetary easing policy 
  • 9. 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 
  • 10. 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 welldeveloped. 
  • 11. 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 
  • 12. 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 sector B. Reforms made to deregulate the Interest Rate by lifting the ceiling rates C. Government has made attempts to introduce new instruments
  • 13. 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. 
  • 14. 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. 