Japan Seeks to Ease Regulation Of Foreign-Currency Trading
April 03, 2011
TOKYO -- The Finance Ministry plans to rewrite Japan's laws on foreign-exchange trading early next year, in a move that could boost currency trading in Tokyo and, indirectly, encourage Japanese investors to buy and hold more foreign assets. The ministry says that it expects to submit a bill to Japan's parliament early next year, and that it expects the bill to be passed by March. Details are still being worked out, but the new law would seek to cut red tape in Japan's financial markets and end the banking industry's longstanding dominance over currency trading. ``This is a key deregulation measure for us,'' a senior Finance Ministry official says. The move is part of Japan's slow process of liberating its financial system from unwieldy rules and forcing more competition. The goal is to remove restrictions that keep Japan from blossoming into Asia's premier financial center. Expanded Trading Expected Many hope the new foreign-exchange law will boost volume in Japan's currency market, by allowing brokerage companies and trading houses to conduct more foreign-exchange transactions. Legally, banks have long had a virtual monopoly on currency trading in Japan. In practice, the ministry has allowed other businesses to trade currencies under certain circumstances, including agreements for their accounts and limited transactions on behalf of customers. But these exceptions are kept to a minimum. Japan's brokerage industry has long been calling for a change in the law, which critics say has stunted the growth of financial services in Japan. ``Japan is the only advanced nation that has this system,'' says Danner Conway, a general manager in the Treasury department at Nomura Securities Co., Japan's top brokerage company. Difficult Transactions For Nomura and other brokers, important financial transactions are cumbersome. For example, a broker in Japan is allowed to buy dollars for a Japanese investor seeking to buy, say, a U.S. Treasury bond. But if the client wants to hedge the risk of that investment by purchasing currency futures or options, a common transaction elsewhere in the world, the broker has to book the hedge through a bank on the customer's behalf. Thus many investors don't bother hedging their foreign investments. But if hedging were easier, more Japanese might be willing to invest overseas. Bankers are putting up little resistance to the law, because they say it will take a long time for brokerage companies to develop the know-how to become real competitors for currency business. But some say the banking industry stands to lose as increased competition drives down margins on currency trades.
