The ministry of higher education, science and innovation of the republic of uzbekistan

Table 2.
External Lending by Japanese Banks

Since Japanese banks lend predominantly in foreign currencies (mostly U.S. dollars) to take advantage of higher yields abroad, why do the banks also borrow primarily in foreign currencies? One factor accounting for the banks’ foreign currency borrowing is the absence of a well-developed bankers’ acceptance market and the fact that both exports and imports are predominantly non-yen denominated; therefore, as Thorn (1987, p. 87) points out, banks often borrow short-term to make “impact loans” (foreign currency loans to domestic firms) to finance trade.
A second factor that appears to have contributed to foreign-currency borrowing by Japanese banks is the fact that such borrowing possesses several advantages over yen-denominated borrowing in Japan. The reserve requirement on all foreign-currency liabilities to nonresidents, regardless of duration or size, is close to the minimum. Unlike rates paid on other types of deposits, which are regulated, interest rates on foreign currency deposits are set freely by the banks. The maturity of these deposits is left to negotiation between the bank and the depositor, and there are no upper limits to the quantities of such deposits. For large deposits (over $100,000) the interest rates are determined through individual negotiation on a bilateral basis and take into consideration euromarket rates in order to ensure competitiveness with rates in that market.
A third factor accounting for Japanese banks’ foreign currency borrowing is the existence of prudential regulations that limit banks’ net foreign exchange exposure. Specifically, banks’ combined (spot plus forward) net foreign exchange exposure cannot exceed $1 million (positive or negative) at the close of each business day. Consequently, if banks lend in foreign currencies, prudential regulations prompt the banks to also borrow in foreign currencies.
The discussion above indicates that Japan’s role as an international financial intermediary is characterized by the following attributes: Japanese long-term capital outflows have been concentrated in securities; and the predominance of capital outflows has been denominated in terms of the U.S. dollar, because of the relatively high-yields available on U.S. securities. As Thorn has observed, Japan’s long-term capital outflows have “largely financed the financial disequilibrium of developed countries.” On the other hand, direct investment to developing countries comprises a small share of net capital outflows, and most of that has been directed toward Asian developing countries. Thus, the processes underlying the emergence of sterling and the dollar as international currencies, whereby developing (and reconstructing) countries accumulated sterling- and dollar-denominated balances (for liquidity and/or investment, to pay for imports invoiced in those currencies, and to service loans for capital development denominated in those currencies), appear to be less significant in the case of the yen (except with respect to Asian developing countries) than they were earlier for sterling and the U.S. dollar. 
MPMs are held eight times a year, each time for two days. At the MPMs, the Policy Board members discuss and decide the guideline for monetary market operations. The monetary policy decisions are made by a majority vote of the nine members of the Policy Board, which consists of the Governor, the two Deputy Governors, and the six other members.
In addition to in-depth research and analysis on economic and financial conditions, the Bank studies and examines various matters concerning monetary policy, such as monetary policy strategies and instruments as well as the financial system. The Bank makes use of its research findings as the basis for deciding monetary policy.
With regard to the emergence of sterling and the dollar as international currencies, the well-developed financial markets of the United Kingdom and the United States were conducive to international financial intermediation in terms of sterling and the dollar, respectively. In contrast, Japan’s intermediation has not been denominated predominantly in terms of the yen. Consequently, although Japan has been channeling funds to the rest of the world, that process has not necessarily been conducive to the yen’s international use. Since foreigners have not primarily been accumulating yen-denominated loans, they have had less incentive to accumulate yen-denominated claims to pay back such loans. Further, the fact that the Japanese financial market has been (until recently) tightly regulated, and remains narrow and thin in some areas, has also discouraged the holding of short-term, yen-denominated claims by foreigners.