The Bangko Sentral ng Pilipinas (BSP) is actively seeking a peso-Japanese yen settlement framework to encourage more trade and investments between the two countries, according to BSP Governor Benjamin E. Diokno.

Peso bills

During the virtual Philippine economic briefing in Japan, Diokno said BSP is “keen on pursuing other areas of cooperation with Japan” and the settlement link is generally viewed as an opportunity to improve and deepen the bilateral economic and commercial ties between the Philippines and Japan.

The Philippine Peso-Japanese Yen Direct Settlement Framework will complement the existing bilateral swap arrangement (BSA) and the Cross Border Liquidity Arrangement (CBLA) with the Bank of Japan (BOJ).

The BSP since 2019 has initiated the establishment of a peso-yen settlement framework not only for local currency trade links, but also to minimize foreign exchange risks.

During his presentation, Diokno stressed Japanese investors’ significant presence in the country as a steady source of foreign direct investments (FDI) and remittances.

He also assured investors that peso volatility continue to be manageable, supported by a gross international reserves of more than $107 billion, exports revenues, remittances, FDIs, and business process outsourcing receipts. The BSP is also constantly revising foreign exchange policies and easing rules for smoother trade and investment transactions.

“Japan has been a vital source of FDIs, more so during this pandemic,” said Diokno. “Bucking trends, (Japan’s) FDIs to the Philippines more than doubled last year to nearly $700 million.” Japan accounted for 47.4 percent of net equity FDIs.

Diokno invited Japanese investors to consider investing more in the country’s financial technology or fintech, financial digitalization projects and especially in green and sustainable finance.

“As we build our digital finance ecosystem, the Philippines hopes to attract foreign investments, which may bring advanced technologies and technical expertise,” he said during the economic briefing. “Foreign investors are welcome to do business in the Philippines, to take advantage of untapped potentials in the financial services space and, in doing so, be our partners in achieving our economic growth and financial inclusion objectives.”

The BSP and the Ministry of Finance of Japan has been working on establishing a peso-yen direct trading link to reduce foreign exchange risks between the two currencies, and at the same time, pushing to expand trade and investments. In 2019, a Letter of Intent has also been signed.

Under this framework, the yen can be directly priced against the peso, and vice versa.

Since 2014, on a country-by-country basis, the BSP and BOJ has a working BSA. The swap deal includes a crisis resolution facility which is a crisis prevention scheme to address potential liquidity needs.

The BSA is expected to be renewed when it expires by the end of 2021 to provide short-term liquidity support to the Philippines and Japan. 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 the 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.

Source: Manila Bulletin (