TOKYO -- With negative interest rates making stable returns impossible to achieve, all 11 Japanese asset managers running money market funds plan to close them and return assets to investors, effectively ending a once-flourishing market.
Money market funds invest mainly in short-term instruments such as commercial paper and government debt carrying maturities of less than a year. Though principal is not guaranteed, these investment trusts have been considered safe. Japanese money market funds held 1.37 trillion yen ($12 billion) in assets Friday.
After the Bank of Japan adopted negative interest rates, yields on the short-term assets held by these funds plunged, dipping below zero in some cases. As money market fund returns sank to a record low of around 0.02%, asset management companies decided that returning customers' money before the funds fall below par value would be safest.
All 11 companies have stopped accepting new investments into money market funds. Nomura Asset Management and Daiwa Asset Management intend to repay investors by August and October, respectively. Mitsubishi UFJ Kokusai Asset Management is preparing to do so in April or May. Five other companies, including Nikko Asset Management, had announced plans as of Monday to return customers' money.
Money market funds were introduced in Japan in May 1992. Retail investors were drawn to their safety and higher returns compared with bank deposits. Total assets in money market funds peaked at 21 trillion yen in May 2000. But their popularity waned after the 2001 collapse of U.S. energy company Enron, which caused the money market funds holding its debt to drop below par value.
The impact of negative interest rates is spreading to other financial products. Returns have sunk below 0.02% for money reserve funds, mutual funds similar to money market funds with assets totaling more than 10 trillion yen. Because these funds serve as settlement accounts used in stock and mutual fund trading, returning customers' assets is difficult. Asset management companies can cover losses to keep their value above par but bear the cost of doing so.
Some life insurers are halting sales of products aimed at savers. T&D Financial Life Insurance will suspend sales of some single-premium whole-life policies March 16.
Retail investors with narrowing options are seeking products that guarantee better returns. A February auction of Japanese government bonds aimed at individuals drew 233.5 billion yen in bids, up 57 billion yen from a month earlier and the most in 19 months. The notes' 0.05% yield at issuance is higher than the 0.01% return on time deposits offered by major banks.