JAPANESE CITY BANKS MOVE TO BAN ROLLOVER OF FOREIGN EXCHANGE POSITIONS

JAPANESE CITY BANKS MOVE TO BAN ROLLOVER OF FOREIGN EXCHANGE POSITIONS

Japan's city banks are moving toward prohibiting customers, as early as April, from rolling over forward foreign-exchange positions, senior dealers say.

A dealer with a major city bank said Japan's largest commercial banks have been discussing joint guidelines since last year, but that "Concrete regulations based upon the guidelines will be left to the discretion of each bank."The guidelines would likely allow exceptional rollovers for commercial cases such as shipping delays, he said, though would still probably limit rollovers to a year or less.

Foreign dealers say city banks, concerned about losing customers through any strict unilateral action, would harmonize among themselves whatever guidelines they adopt.

Companies commonly use rollovers to hide losses on unprofitable forex positions or to shield from taxation gains on profitable ones. Japanese accounting rules do not require companies to reassess their assets to true market value before reporting profits or losses.

The move to prohibit rollover of forward positions is an attempt to align Japanese bank policy with that of other nations, none of which allows the practice, the city bank dealer said.

Bank of Japan and Ministry of Finance officials say rollovers increase unaccounted credit risks that banks incur when their customers go bankrupt and are unable to meet their forward contract obligations.

Foreign-exchange managers here say abolishing rollovers would not be popular with Japanese customers, who would have to pay taxes on foreign- exchange gains while losing a means of hiding losses.

Although abolition of the rollover practice would have little impact on the foreign-exchange market, dealers say, it might reduce speculative trading

from customers who would no longer be able to hide losses on such activity.

Though life insurers will voluntarily end the practice at the end of this fiscal year, March 31, other business sectors such as exporters, importers and trading houses for the time being are contemplating what to do, dealers said.