BSP, JMOF explore peso-yen trading link to lessen forex risks

Published June 1, 2019, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

The Philippines through the Bangko Sentral ng Pilipinas (BSP) and the Ministry of Finance of Japan (JMOF) will look into establishing a peso-yen direct trading link to reduce foreign exchange risks (forex) between the two currencies.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno. (Bloomberg)
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno. (Bloomberg)

In a statement Friday, the BSP said its Governor, Benjamin E. Diokno, and Minister Taro Aso of the JMOF has signed a Letter of Intent (LOI) for the “mutual interest of the BSP and JMOF to explore the establishment of a Japanese yen-Philippine peso ‘Direct Trading Framework.’”

“Under the envisioned trading framework, the Japanese yen can be directly priced against the Philippine peso, and vice versa, reducing foreign exchange risks and encouraging wider use of both currencies,” according to the BSP-JMOF joint statement.

“The framework is also viewed as a good opportunity to deepen bilateral economic and commercial ties between Japan and the Philippines as its implementation is expected to boost trading and investment volume between the two countries,” it said.

The LOI was signed on the sidelines of President Duterte’s visit to Japan this week.

Since 2014, the BSP and Bank of Japan has a working bilateral swap arrangement (BSA). It was both central bank’s third BSA with each other. The BOJ is the acting agent of the JMOF.

The BSP and BOJ has a standing BSA worth $12 billion.

The swap deal includes a crisis resolution facility which is a crisis prevention scheme to address potential liquidity needs.

The BSA was renewed in 2014. It enables the Philippines to swap its local currency against Japanese yen, or $12 billion equivalent for the Philippines and $500 million for Japan.

In 2013, the BSP and BOJ implemented its peso-yen swap facility through its cross-border liquidity arrangement (CBLA).

The CBLA allowed banks operating here including Japanese banks, to access the peso liquidity against their yen holdings “during emergency situations.”
Basically, Philippine banks could purchase peso from the BSP by selling and repurchasing Japanese yen with the central bank.

These agreements forge collaboration between the BSP and BOJ. It signals the long-standing economic and financial relationship between Japan and the Philippines.