Photographer: Kiyoshi Ota/Bloomberg

BOJ Roils $14.1 Billion Money Market Industry as Nomura Suspends

  • Daiwa, Mitsubishi UFJ among providers with similar plans
  • Central bank has set rate on some deposits at minus 0.1%

Nomura Asset Management Co. stopped accepting investments into some money-market funds, joining 10 other managers in suspending such accounts as the $14.1 billion industry grapples with the negative interest rates introduced by the Bank of Japan last week.

The brokerage said Friday it will suspend orders for its Money Management Fund and Free Financial Fund from Feb. 9 following the BOJ decision to set the rate on some excess reserves held by financial institutions at the central bank at minus 0.1 percent. Ten firms including Daiwa Asset Management Co., Mitsubishi UFJ Financial Group Inc., Mizuho Asset Management Co. and Resona Bank Ltd. have made similar announcements.

The BOJ joined monetary authorities around Europe on Jan. 29 in betting setting rates below zero will reduce borrowing costs for companies and households, drive demand for loans and encourage investment in higher-yielding assets. Yields on Japanese government bonds with maturities as long as eight years have turned negative, while the level for the benchmark 10-year security dropped to a record 0.035 percent on Friday in Tokyo. The Ministry of Finance this week scrapped a sale of 10-year fixed-rate notes aimed at individual investors.

“Money that would have been invested in MMFs would probably flow into deposits,” said Yusuke Ikawa, a Tokyo-based strategist at UBS Group AG. “Banks who receive that money in deposit accounts will probably invest it into longer-term bonds such as 10- and 20-year notes that offer positive interest rates. That means it won’t be long before we see negative yields on 10-year government securities.”

Funds Shrink

Assets held by money-market funds dropped to a record 1.643 trillion yen ($14.1 billion) in December, down 4.3 percent from November, according to data from the Investment Trusts Association of Japan. The Nomura Money Management Fund has 474.5 billion yen in assets and Free Financial Fund holds 560 billion yen, figures on Nomura’s website show.

“Although the negative rate is applicable only to a part of current accounts that financial institutions hold at the Bank of Japan, yields are falling in the domestic short-term market, which is the main investment of the funds,” Nomura said in a statement.

Daiwa’s suspended orders for three funds Monday, with MUFG halting applications for a total of five funds from the following day.

Japan’s finance ministry cited low rates in announcing Wednesday it would cancel the sale of 10-year retail notes. It abandoned a similar sale of two-year debt in October 2014, saying buyers would have to pay more in broker fees than they would get in interest.

Japanese households held 1.7 quadrillion yen of financial assets as of Sept. 30, according to BOJ data.

Before it's here, it's on the Bloomberg Terminal.