Japan supports for monetary interruption when Akihito relinquishes

Japan’s banks and brokers are bracing for foreign exchange volatility, a surge in demand for cash and millennium bug-scale computer problems when the nation takes an unprecedented 10-day holiday to mark the abdication of Emperor Akihito.

Regulators are pushing banks to make urgent preparations so the festivities for a new emperor between April 27 and May 7 are not marred by empty ATMs, queues at bank branches and disruption to international markets.

The need for such elaborate preparations highlights the unusual length of the holiday and the extent to which the name of the Imperial era is built into Japanese computer systems.

Dates in Japan are usually given by the year of the Imperial era: 2019 is the 31st year of Heisei, but on May 1 the date will change to the first year of a new era. The characters for Heisei are printed on almost every financial document and built into computer systems that did not exist in 1989, when there was last a change of Imperial era.

In addition, all government offices will be shut and most businesses are expected to close.

“It’s the longest holiday we’ve ever dealt with and so to some extent it’s an unknown,” said Koji Fujiwara, chief executive of Mizuho Bank and chair of the Japanese Bankers Association, in a recent interview with the Financial Times. “Above all, this is a change of era and a change of era name, so it’s a special period.”

As a result, there is a similar issue to the millennium bug, when computers had to be reprogrammed to recognise the change from 1999 to 2000. Preparation is made more difficult because although it is known that his son, the crown prince Naruhito will succeed him, the name of the new era is a closely guarded secret and will not be announced until April 1.

The Bank of Japan expects people to draw more cash to last them through the holidays and is urging banks to stock up. Regulators are keen to highlight the fact that cash will be available to discourage even bigger withdrawals.

“ATMs will be working as normal. It’s important that customers know there will be no issues,” said one official at the Financial Services Agency. “For tasks that need to be done at the bank counter, there will be crowds before the start of the holiday. Banks need to try and move that demand forward.”

BOJ-NET, the settlement system for payments between banks and trades in Japanese government bonds, will be closed throughout the holiday. While transfers to accounts within the same bank will go through, transfers to accounts at different banks will pile up, and will not be executed until the country goes back to work.

“It’s important to note there is no settlement risk,” said the FSA official, referring to a build-up of unsettled debts between the banks, which can be dangerous for the financial system if any institution fails. “Rather, transactions will be delayed.”

Japanese banks and brokers are also worried about what could happen in global markets while they are stuck on an enforced holiday. Yujiro Goto, a foreign exchange strategist at Nomura, warned about the risk of a “flash crash” given thin trading in the yen.

There were sharp movements in the yen on January 3 this year when Apple warned on profits while Japanese markets were closed for the new year holiday. Mr Goto said that Japanese exporters and life insurers might temporarily increase their hedging to offset the risk.

Large banks such as Mizuho plan to manage their own market positions from offices in London and New York but securities houses are concerned about what their customers will do if there is a lurch in foreign markets and they want to sell.

Some brokers have said they will open branches for two of the 10 days, but only to take sell orders for foreign stocks, while others will remain closed throughout.

Additional reporting by Leo Lewis

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