BOJ-NET Infrastructure
Real-time gross settlement system, book-entry transfers, and DVP mechanics for JGB auctions and secondary trading
The Infrastructure: BOJ-NET and the Book-Entry System
Before understanding JGB auction mechanics, it's essential to understand the electronic infrastructure that makes all JGB transactions possible. All JGB transactions—from primary auctions to secondary trading to settlement—flow through the Bank of Japan's proprietary system.
BOJ-NET: Japan's Financial Market Infrastructure
BOJ-NET (Bank of Japan Financial Network System) is the central bank's real-time gross settlement (RTGS) system. It handles two critical functions:
- BOJ-NET Funds Transfer System: High-value yen payment settlements between financial institutions
- BOJ-NET JGB Services: Electronic book-entry transfer system for Japanese Government Securities (JGS)
For JGB markets, the second component is essential—it's the only official registry and settlement system for all JGBs.
JGBs exist only as electronic entries in the BOJ-NET system. There are no physical certificates. When you "own" a JGB, what you actually own is an electronic record in the BOJ's database.
Key Features:
| Feature | Description |
|---|---|
| Dematerialized | No paper bonds exist. All holdings are electronic book entries. |
| Real-Time Settlement | Transfers occur instantly during system operating hours (9:00-18:30 JST) |
| Delivery vs. Payment (DVP) | Bond delivery and cash payment occur simultaneously, eliminating settlement risk |
| Participant Accounts | Only BOJ account holders (banks, securities firms, institutional investors) can directly access the system |
| Custodian Structure | Retail investors hold JGBs through their brokers, who hold custody accounts with BOJ-NET participants |
Primary Dealers submit bids electronically via BOJ-NET terminals
MOF/BOJ processes bids and allocates bonds to winning bidders
Next business day: JGBs credited to dealer accounts, cash debited via BOJ-NET DVP
Dealers can immediately trade bonds OTC; all settlements clear through BOJ-NET
Regular Hours: 9:00 AM - 6:30 PM JST (weekdays)
Auction Settlement: Always T+1 (trade date plus one business day)
Secondary Market Settlement: T+1 for most transactions
Example Timeline:
- Tuesday 10:30 AM: 10-year JGB auction concludes, results published
- Wednesday 9:00 AM: BOJ-NET opens for settlement
- Wednesday ~10:00 AM: JGBs delivered to winning bidders, cash settled via DVP
- Wednesday 10:01 AM onward: Dealers can trade the newly issued bonds in secondary market
- Account Requirement: To bid in JGB auctions, you must be a registered Primary Dealer or Special Participant with BOJ-NET access
- Cash Preparation: Winning bidders must have sufficient yen reserves in their BOJ current accounts by T+1 settlement
- Immediate Liquidity: Bonds can be repo'd or sold in secondary market immediately after settlement
- Fail-Safe: DVP ensures you cannot receive bonds without paying, or pay without receiving bonds—eliminates counterparty risk
Key Takeaways
- BOJ-NET is mandatory: All JGB transactions—primary auctions, secondary trades, repo—must settle through this system
- Fully electronic: No physical JGB certificates exist; ownership is purely book-entry
- DVP eliminates risk: Simultaneous delivery and payment means no counterparty settlement risk
- T+1 settlement: Auction winners receive bonds the next business day
- Access requirements: Only registered participants can access BOJ-NET directly; retail investors access via custodians
References
- Bank of Japan. "BOJ-NET (Bank of Japan Financial Network System)." Available at: https://www.boj.or.jp/en/paym/outline/expbojnet.htm
- Bank of Japan. "Functions and Operations of the Bank of Japan." Chapter on JGB Settlement Infrastructure.