The Ministry of Finance (MoF) in Japan says the new Primary Dealer System for placing and trading new issues of JGBs will be introduced “gradually” from October this year.
Before then the first index-linked JGBs wil be issued, perhaps starting as early as March. The authorities say they will issue around JPY 300 billion per issue, twice a fiscal year. However, only domestic institutional investors will be allowed to invest in inflation-linked JGBs, for tax reasons.
What foreign institutional investors will be allowed to do is invest in Treasury and Financial Bills, via a global custodian bank as intermediary, through the book entry transfer system, from April 2004. In addition, profits from any sales will be exempted from withholding tax, under certain conditions.
“At present, investors located abroad are required to invest in Treasury and Financial Bills through a local custodian under the book entry system,” says a spokesman for Sumitomo Mitsui Banking Corporation in Tokyo. “Foreign investors are not allowed to deposit Treasury Bills or Financial Bills with a global custodian as their direct intermediary. This does not match with the chain of global custodians and their sub-custodians in fact. We lobbied to improve the unrealistic system and regulations, together with some other local sub-custodian banks. Our efforts brought about the changes.”