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Chapter 14 Finance and Insurance
This chapter contains monetary statistic, including banking operations, public bonds and insurance.
Levels of main interest rates
Official discount rate:
The official discount rate is the rate charged by the Bank of Japan for loans it makes to other banks.
Deposit/saving interest rates:
The Minister of Finance has the initiative in respect to the ceiling on deposit interest rates. Subsequent to his/her initiative, based on the Temporary Interest Rates Adjustment Law, the Policy Board of the Bank of Japan refers the matter to the Financial System Council for deliberation, thereby deciding the ceiling. The Minister of Finance publicly announces the decision. On the other hand, the Minister of Internal Affairs Communications submits the matter of the interest rates of postal savings to the Postal Services Council for deliberation based on the "Postal Savings Law." On the basis of its report, the rates are decided in the Cabinet meeting and are announced as a government ordinance.
The "Temporary Interest Rates Adjustment Law" enacted in 1947 regulates the ceiling on interest rates of private financial institutions including lending rates and deposit rates. To decide the ceiling on lending rates, on the initiative of the Minister of Finance and Financial Services Agency, the Policy Board of the Bank of Japan refers the matter to the Financial System Council for deliberation. Lending rates are determined based on the report of the Council.
Short-term money market interest rates:
The short-term money market interest rates are divided into inter-bank market interest rates (call rates and buying/selling rates of bills) and open-market interest rates (CD rates and bond purchase market rates). Any one of these interest rates is unregulated, and rate that is dependent on demand and supply of funds in the market.
Bank of Japan accounts
The statistics on Bank of Japan accounts grasp the figures of the balance sheet of the Bank of Japan, which is the central bank of Japan. They reflect the results of its transactions with the money market such as financial institutions to conduct monetary policy and daily monetary adjustments.
Assets and liabilities of domestically licensed banks (bank accounts)
The statistics pertain to the accounts of assets in banking business of domestic banks (city banks, regional banks, member banks of the Second Association of Regional Banks, trust banks and long-term credit banks) licensed under the Bank Law and the Long-term Credit Bank Law. It is a summary of balance sheets of all banks in Japan, which are submitted to the Bank of Japan at the end of each month.
Assets and liabilities of domestically licensed banks (trust accounts)
The bank accounts of trust banks are included in the bank accounts of domestically licensed banks. The Trust Business Law mandates trust banks to place trust assets under separate management from assets in banking operations. Hence, trust assets are recorded in the trust account.
Main Accounts of financial institutions for small business
Financial institutions that finance primarily small and medium-sized enterprises are such private institutions such as mutual financing banks, credit associations, Central Credit Association, credit unions, National Federation of Credit Cooperatives, Central Bank for Commercial and Industrial Cooperatives, Labour Credit Associations and Federation of Labour Credit Association. The monthly balance of assets and liabilities of these financial institutions are combined in the accounts for financial institutions for small business.
Main accounts of financial institutions for agriculture, forestry and fisheries
Financial institutions that primarily finance agriculture, forestry and fisheries consist of three-tier affiliated organizations:  Central Cooperative Bank for Agriculture and Forestry,  National Federation of Agricultural Cooperative Associations, National Federation of Fisheries Cooperative Associations and National Mutual Insurance Federation of Agricultural Cooperatives and  Agricultural cooperatives and fisheries cooperatives. The monthly balance of assets and liabilities of these institutions are integrated as the accounts of financial institutions for agriculture, forestry and fisheries.
Securities finance institutions
A major source of funding for enterprises is the securities market as well as the bank loan market. Securities companies and securities finance corporations are the main props of the securities market as financial.
The Securities and Exchange Law provides that securities companies shall be the dealers of securities, and that they must be registered and authorized by the Commissioner of the Financial Services Agency. They shall be involved primarily in the business of securities' underwriting, public offering and agency transactions. Many foreign securities companies have been getting into Japan in recent years. The Law concerning Foreign Securities Companies mandates foreign securities companies to be register by the Commissioner of the Financial Services Agency and the companies are subject to the regulations based on the Securities and Exchange Law in terms of their business activities.
Securities finance companies are organized to supply funds and securities necessary for the smooth issuance and circulation of stocks and public and corporate bonds.
Public financial institutions
In Japan, the functions of public financial institutions consisting of the postal savings, the Trust Fund Bureau and government-affiliated financial institutions cannot be ignored because they complement the function of private financial institutions.
Balance of loans by government-affiliated institutions:
There are six government-affiliated financial corporations. They include two banks - Development Bank of Japan and Japan Bank for International Cooperation, and the National Life Finance Corporation, Government Housing Loan Corporation, Agriculture Forestry and Fisheries Finance Corporation, Japan Finance Corporation for Small Business, Japan Finance Corporation for Municipal Enterprises and Okinawa Development Finance Corporation.
Funds of the Trust Fund Bureau:
The Trust Fund Bureau has been involved in investment and financing activities in such a way that it makes loans to local public bodies and private enterprises through banks and public financial corporations. Its major financial resources are derived from deposits that the central government has received in trust from people such as postal savings and various insurance and pension systems.
Receipts and withdrawals of postal savings, outstanding of postal savings loans and postal transfer savings
The Ministry of Internal Affairs and Communications releases the report "Postal Service Administration Statistics (exchange and savings)." It lists an amount of postal savings by type of savings (ordinary, installment, time, property accumulation and fixed amount), postal savings loan fund, and amount received/paid by mail transfer. The report provides important statistics to grasp the trends of postal savings, which are in competition with deposits in private financial institutions.
Postal savings loan fund:
The "Postal Savings Law" was revised in 1972, thereby establishing a loan system to depositors. It became possible to use deposits as collateral for loans.
In 1906, the "Postal Transfer Savings Regulation" came into force, thereby starting the mail transfer system which enabled payments into savings accounts and funds transfer between accounts. The funds from this mail transfer are deposited to the Trust Fund Bureau together with postal savings and used as resources of financial investment and loans.
Principal assets of postal life insurance fund
The statistics demonstrate how premiums collected by the post office for its postal life insurance are used as resources for securities such as government bonds, local bonds and corporate bonds and loans to local public bodies or reserved as investment deposits and ordinary deposits.
Statistics on public and corporate bonds, stocks and insurance
Amount of check-clearings
The statistics pertain to the number and sum of bills and checks brought to clearinghouses.
Average amounts outstanding in the call loan market
The call loan market is a market where short-term loans are made so as to adjust the surplus or shortage of short-term cash reserves among financial institutions and securities companies.
Average amounts outstanding in the bills market by buyers/sellers
The bills market together with the call loan market is an inter-bank market that functions as a place of raising funds among financial institutions such as banks.
Issuance, redemption and balance of government securities
The Japanese government issues bonds within the limit approved by the Diet every year for raising funds for general accounts and for the redemption of the bonds. They are government bonds including construction bonds issued for the purpose of public works such as constructing and improving roads, harbors and houses, extra bonds or deficit-covering bonds issued for the purpose of covering deficits, and refunding bonds issued for the purpose of raising funds for the redemption of government bonds.
Issuance, redemption and balance of public and corporate bonds
A prefectural government or a municipal government issues local bonds. In principle, however, the Local Government Finance Law bans a local government to issue bonds, but stipulates some exceptional cases in which it is allowed to issue bonds. There are five exceptional cases:  funds necessary for local public enterprises such as hospital, water supply and sewerage projects,  financial resources necessary for investment and loans,  disaster relief and rehabilitation works,  construction of public facilities such as schools and government buildings and  refunding of the bonds issued for these works.
Special bonds and government-guaranteed bonds
The bonds issued by public corporations and public finance corporations based upon a special law are called "special bonds." These corporations are funded by the government and issue their bonds under government guarantee in most cases. In other words, the government guarantees the payment of the principal and interest.
The bank debenture is issued by special financial institutions that are authorized under a special law. There are two kinds of bonds: interest-bearing bonds and discount bonds.
Straight bonds refer to bonds (corporate debentures) issued by private business joint-stock companies excluding financial institutions. These bonds are used chiefly as long-term and stable funds for capital investment.
Convertible bonds (CB)
Convertible bonds are similar to straight bonds except that they can be converted into stocks.
Bonds with subscription rights
This bond is a type of corporate debenture and called a corporate bond with warrant. That is, it is a bond attached with the right to purchase new shares of the bond issuing company at a certain price within a period prescribed in the straight bonds.
Yen-denominated foreign bonds
Non-residents of Japan such as the governments of foreign countries, international organizations and overseas private enterprises issue bonds denominated in yen and offer the bonds for public subscription.
Establishment, cancellation and redemption of securities investment trust
The securities investment trust works in the following mechanism. A securities investment trust management company (settlor trustee) which is affiliated to a securities company sells securities to raise money from individual investors (beneficiaries) and trusts the funds to trust banks or banks engaged in trust business (trustee). The trustee, say a trust bank, invests the funds in securities according to instructions from the settlor trustee and the benefits (from selling/buying the securities, dividends and interest) are distributed to beneficiaries.
Volume of transactions of listed stocks and yield
The securities company shall be engaged in  selling/buying,  mediation of or agency for selling/buying,  mediation of or agency for transactions in the market,  underwriting,  secondary distribution, and  handling of public offering or secondary distribution.
The securities exchanges are located in Sapporo, Tokyo, Nagoya, Osaka, and Fukuoka. They are incorporated company for the purpose of opening markets for transactions of securities.
Tokyo Stock Exchange stock price index (the first section market) and Nikkei Stock Average index
Tokyo Stock Exchange stock price index
The current total market value of all shares is computed by multiplying the number of listed shares by the prices of shares from all brands of common stocks listed in the first section market of the Tokyo Market. It is then divided by the total market value at the base date to obtain the index.
Nikkei Stock Average index
The Nikkei Stock Average is based on 225 listed brands and is computed every minute in a formula used by Dow Jones in the USA. The figures are released via several means of network.
The primary purpose of an insurance company is making insurance contracts with people who wish to be prepared for unexpected accidents/disasters such as, death or fire and receiving payments of premiums based on certain criteria from contracting parties. When a contracting party is struck with an accident specified in his/her contract, the company pays him/her a contract insurance amount. Hence, the insurance company cannot be categorized under financial institutions such as banks from the nature of business intrinsic to the insurance company. Nonetheless, the premiums paid by contracting parties must be reserved for the occurrences of accidents and the reserve amounts to a huge sum of money, thereby making it possible for the insurance company to use the funds for investment and loans. Thus, it plays an important role as an institutional investor in supplying industrial funds to the securities market.