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Japan Said to Survey Banks on Currency Rate Setting Amid Probe

Japanese authorities are preparing to gather information about how banks set foreign-exchange rates for commercial transactions amid a global probe into rate manipulation, two people with knowledge of the matter said.

The Financial Services Agency and Bank of Japan will present the information to the Financial Stability Board, a group of global regulators that is reviewing currency fixing, the people said, asking not to be named as the matter is private. Banks in Japan have little scope to rig currency rates because they set them individually and don’t make submissions for benchmarks, one of the people said.

The Libor Scandal Sets Off a Wave of Probes

The stability board started its review of foreign-exchange benchmarks this month following allegations traders in the $5.3 trillion-a-day global currency market colluded to manipulate rates. At least a dozen regulators on three continents are investigating whether traders rigged benchmarks including WM/Reuters rates. More than 20 traders have been fired or suspended globally.

“As each bank provides its own foreign-currency fixes in Japan, there should be less chance for rigging between banks,” said Masakazu Sato, a Tokyo-based foreign-exchange adviser at Gaitame Online Co. “The probe by the FSA and BOJ won’t have any effect on the currency market.”

The Nikkei newspaper reported earlier today that the regulator and central bank will start surveying banks in Tokyo on how they set currency rates. Kotoku Watanabe, a spokesman for the Financial Service Agency, declined to comment.

“The BOJ exchanges opinions about the financial markets broadly, including the foreign-exchange market, with participants,” said Yasutaka Hirata, a central bank spokesman. “However, it’s not the case that we are examining a specific matter as reported this time.”

Nakane Rates

In Japan, banks decide yen fixing rates, known as nakane, at around 9:55 a.m. Tokyo time. The rates are applied to transactions throughout the day with the banks’ retail customers and some companies. Interest-rate differentials are adjusted from market rates because a spot transaction is typically settled two business days after the trade.

Banks including Mitsubishi UFJ Financial Group Inc. (8306) announce their individual fixing rates publically and separately from each other. There is no set order for the announcements and there is no single rate or aggregated benchmark that is derived from the fixings.

Collusion Risk

This contrasts with the WM/Reuters fix in London that is at the center of recent concern. That involves a marketwide fix that WM/Reuters generates based on the quotes available from dealers in a small window around each fixing time -- raising the prospect of collusion to alter the rate that is derived.

The 4 p.m. London close has been under suspicion because asset managers and companies have typically asked banks to carry out transactions based on that fix. Traders can adjust their own positions and try to move the benchmark to boost their profit, dealers interviewed by Bloomberg News said in June.

Mitsubishi UFJ, Japan’s biggest bank, fixed the yen at 101.94 against the dollar this morning, compared with 101.91 at Sumitomo Mitsui Financial Group Inc. The yen traded at 101.93 at 10 a.m. in Tokyo, according to data compiled by Bloomberg.

To contact the reporters on this story: Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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