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Monday, November 24, 1997 Published at 15:54 GMT



World: Monitoring

Bank of Japan asks for US help to raise dollar funds
image: [ Japan's financial markets brace for the fall out of the country's biggest corporate failure since 1945 ]
Japan's financial markets brace for the fall out of the country's biggest corporate failure since 1945

Japan's central bank, the Bank of Japan (BOJ), has asked the Federal Reserve Bank of New York to assist Japanese banks in raising dollar funds following the recent series of financial failures in Japan, Japanese Finance Ministry sources said on Monday.

The request was made in the wake of Monday's decision by Yamaichi Securities Co. to cease operations, the sources said, according to the Japanese news agency Kyodo.

The request is based on a pact the BOJ has made with the New York federal bank, under which the latter will provide dollar funds to cash-strapped Japanese commercial banks in the event of a financial crisis in Japan.

Fearing a temporary rise in fund-borrowing costs in overseas markets next week, Japanese banks have already secured larger- than-usual dollar funds, banking sources said.

The BOJ apparently asked for cooperation from the Federal Reserve Bank of New York "to prevent any hitch in Japanese banks' fund procurement", a source at the ministry's International Finance Bureau said.

Finance Minister promises probe into Yamaichi collapse

The Japanese Finance Minister, Hiroshi Mitsuzuka, on Monday announced that an investigation would be held into the circumstances surrounding the collapse of Yamaichi Securities and promised that the assets of Yamaichi clients would be protected with the use of special unsecured loans granted by the Bank of Japan, Kyodo news agency reported.

"If necessary, a legal framework will be revised to strengthen the brokerage industry's deposit compensation fund," Mr Mitsuzuka told reporters at an emergency news conference.

The downfall of Tokyo-based Yamaichi is expected to leave behind roughly three trillion yen in unresolved debts, making it the largest corporate failure in Japanese history.

Mr Mitsuzuka said that the monetary authorities would do their utmost in cooperation with authorities abroad to ensure that Yamaichi's closure does not trigger a wider financial crisis.

"We have taken sufficient steps not to let the Yamaichi closure affect overseas markets and we will also do everything to maintain credit order," he said.

Kyodo quoted industry sources as saying that the central bank plans to extend an unlimited amount of special unsecured loans to Yamaichi, in accordance with Article 25 of the Bank of Japan law, to safeguard about 24 trillion yen in clients' property.

Mr Mitsuzuka promised a Finance Ministry investigation into alleged illegal dealings by Yamaichi, known as "Tobashi" loss-transfer trading activities, which led to the company's debt crisis.

According to Kyodo, Tobashi is a practice in which brokerages temporarily shift investment losses from one client to another in order to prevent a favoured customer from having to report losses.

Yamaichi is reported to have hidden from financial regulators more than 200 billion yen in such debts at dummy companies registered in the Cayman Islands, a British dependency.

BBC Monitoring (http://www.monitor.bbc.co.uk), based in Caversham in southern England, selects and translates information from radio, television, press, news agencies and the Internet from 150 countries in more than 70 languages.






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