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Japan boosts swap deals with Asean

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Japan boosts swap deals with Asean

Cross-border collateral agreement also seen to increase transactions in regional currencies
By: - Reporter / @bendeveraINQ
/ 12:07 AM May 06, 2017
Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo: No spillover. INQUIRER FILE PHOTO

Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo. INQUIRER FILE PHOTO

YOKOHAMA, JAPAN— The Japanese government has proposed to extend its bilateral swap agreement, a stop-gap measure for short-term liquidity problems, with the Philippines and other Asean countries.

“As economic ties between Asian and Japan strengthen amid the Asean financial integration and increasing activities of Japanese firms in the region, it is important to promote the use of local currencies in cross-border transactions in the region over the medium term. Facilitating the funding of yen in Asean will contribute to further regional stability. Meanwhile, there is also renewed demand for strengthening regional financial safety net in view of recent uncertainty in the global economy,” read the joint statement issued following the meeting of the finance ministers and central bank governors of Asean and Japan.

“Upon these considerations, Japan proposes to make it possible to withdraw yen under the existing BSAs (bilateral swap agreements) as well as to establish a new type of BSA with size of up to $40 billion (approximately 4 trillion yen) to address short-term liquidity problem,” the statement added.

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On the sidelines of the Asian Development Bank’s 50th annual meeting, Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo told reporters that the Japanese government was prepared to provide the BSA and each Asean member might be extended a maximum of $40 billion each, with the actual amount subject to discussion depending on a standardized formula.

“We have our own BSA with Japan. This is now the third BSA that we have, which will mature in October of 2017. It provides for $12 billion from Japan to us and in case Japan encounters a problem, we’re prepared to give them $500 million. There’s a disparity for obvious reasons—we’re a smaller economy,” Guinigundo said.

Guinigundo noted that at present, the BSA was limited to 30 percent in line with the de-linked portion of the Chiang Mai Initiative, the multilateral currency swap arrangement among Asean’s 10 member-states, China, Japan and South Korea.

“I think they’re going to enhance that and adjust it to a higher level. So if you encounter a problem in your balance of payments—a very short-term liquidity problem, you can draw as much as 30 or 40 percent [of the required amount] without condition,” Guinigundo said.

The BSAs will also allow draw down in Japanese yen, Guinigundo added.

The new BSAs will likely be firmed up before yearend, according to Guinigundo. “Our BSA is already in place; it will be only subject to enhancement.”

The finance ministers and central bank governors of Asean and Japan also sought the conclusion of the cross-border collateral agreement between the Bank of Japan and Asean’s central banks, which they said would “function as backstop when Japanese banks face difficulty in funding of local currencies in Asean.”

“This [cross-border collateral agreement] will contribute to more transactions denominated in local currencies in the region by enhancing the stability of Asean financial markets,” they added.

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Also, the finance ministers and central bank governors of Asean and Japan “confirmed their commitment to further strengthen economic and financial cooperation in in order to secure the sustained economic growth of Asean and Japan in the next 50 years.”

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