TOKYO -- Bank of Tokyo-Mitsubishi UFJ has informed Japan's Finance Ministry that it will cease to serve as a market maker for Japanese government bonds, a move driven by the growing burden of holding the notes under negative interest rates.
Top officials from the bank and the ministry spoke on the issue Monday, sources said. The ministry plans to accept the request and is expected to revoke BTMU's primary-dealer status as early as the end of June. The bank likely indicated that it will stay active in JGB trading and that affiliated brokerages will remain primary dealers.
Japan has 22 primary dealers, which have a direct line to financial authorities in exchange for an obligation to bid on a certain percentage of JGBs in government auctions. The core banking unit of Mitsubishi UFJ Financial Group will be the first Japanese financial institution to quit as a primary dealer, though foreign brokerages have done so in the past.
The withdrawal of Japan's largest megabank from the ranks could affect the smooth digestion of future JGB issuances and the Bank of Japan's monetary policy.