Bank of Japan Deputy Governor Masayoshi Amamiya talks up repo as a monetary policy tool

Development of Asia’s Capital Markets: Roles and Challenges
Keynote Speech at the ASIFMA Annual Conference 2019
Masayoshi Amamiya
Deputy Governor of the Bank of Japan

Enhancing the Effectiveness of Monetary Policy

Lastly, I will touch on the effectiveness of monetary policy. For the conduct of monetary policy, central banks buy and sell financial instruments from capital markets, and they also receive financial instruments as collateral for the provision of liquidity. So, the degree of market functioning and liquidity concerning those financial instruments is a critical element that impacts the effectiveness of monetary policy.

In this regard, repos are financial instruments that are frequently used in the conduct of monetary policy, because repos carry a low credit risk and they are suitable for inventory and liquidity management by market makers. In Asia, market participants have preferred to use FX swaps and uncollateralized funding because of their accessibility and operational convenience, and the role of repo markets has been relatively limited overall. However, the situation is now changing. The EMEAP market survey suggests ongoing efforts to enhance the functioning and liquidity of money markets such as repos. These efforts are being driven by various initiatives, such as the promotion of non-bank participation and the enhancement of industry standards. Accelerating these efforts would lead to greater effectiveness of monetary policy in Asia.

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