Tokyo, March 9: Japan's central bank governor Yasuo Matsushita said on Monday that the bank was investigating reports that its officials may have given out insider trading information in exchange for lavish entertainment.Matsushita told a parliamentary committee the inquiry covered about 600 management-level officials in the Bank of Japan (BOJ).
The new cloud over Japan's harried financial system came in reports which said a BOJ official accepted entertainment of up to seven million yen ($54,600) from local banks seeking advance information on money market operations over the past five years.
Kyodo news agency said up to seven of Japan's largest banks wined and dined with the executive, who works in a section which executes and monitors liquidity operations in the money market.
The official in the Credit and Market Management Department is suspected of leaking advance word on the bank's moves.
"We have been conducting an internal investigation against about 600 management-level officials to findout whether they have accepted lavish entertainment in the past five years. We will take severe steps on the issue," Matsushita told a budget committee of the Lower House of parliament.
The bank's moves to inject, drain or maintain liquidity into the market determine money market rates, and commercial banks with advance word of its intentions could reap windfalls.
"If for example, you know the intentions a couple minutes ahead of the daily operation, you could clean up something like 10 billion yen," one trader said.
The BOJ carries out its first operation of the day at 9.20A.M. (0020 GMT), an event eagerly watched by world markets because it determines short-term interest rates.The allegations were the latest in a string involving the upper echelons of the ministry of finance and the Bank of Japan.
The allegations left Tokyo traders aghast.
"It's outrageous if it's true," said Chris Pavlou, treasurer at Midland Bank in Tokyo. "Advance knowledge of BOJ operations would give somebody an unfairadvantage and the market wouldn't take very kindly to it."
The credibility of the BOJ, the most respected of Japanese financial institutions, would be dealt a huge blow if the allegations are proved, analysts said.But others said the reputation of Japan's top financial leaders was already tarnished.
"Are we supposed to be surprised by this? I mean, since when has this place been known for transparency or a level playing field," said Ron Bevacqua, vice president at Merrill Lynch.
Analysts were reluctant to speculate whether the allegations could trigger the resignation of Matsushita.
