Mitsubishi UFJ Financial Group (MUFG), Japan's largest financial group, will resume sales of money market funds (MMFs) for the first time in a decade. The move comes as the Bank of Japan's rate hike stance has pushed both short- and long-term bond yields higher, prompting the bank to attract retail funds seeking returns above ordinary deposits.
According to Nikkei on the 4th, MUFG plans to launch MMF products next year that invest in highly-rated bonds such as short-term government bonds and corporate bonds.
MMFs were first introduced in Japan in 1992 and peaked in popularity around 2000, when total net assets exceeded 20 trillion yen (approximately 190 trillion won). However, the products virtually disappeared after the Bank of Japan introduced negative interest rates in 2016, making it difficult to generate investment returns.
The turning point came in March last year when the Bank of Japan ended its negative interest rate policy. The central bank has since raised its policy rate to 0.5%, with the possibility of further increases growing ahead of the December monetary policy meeting. Combined with expectations of fiscal expansion under the Takaichi Sanae cabinet and additional government bond issuance, the 10-year government bond yield has recently surged to the 1.9% range, hitting an 18-year high.
With the overall interest rate environment shifting to an upward trend, the financial industry sees renewed competitiveness in MMF sales. While major Japanese financial companies suspended MMF sales after 2016, MUFG's launch of new products next year would mark a revival after 10 years.
The new MMFs are designed to target annual returns of around 0.5%. Considering that the average interest rate on ordinary deposits at Japanese commercial banks is currently about 0.2%, investors can expect more than double the returns. MUFG aims to expand its MMF assets under management to 300 billion yen (approximately 2.85 trillion won) within several years.
A key feature of the new products is the application of blockchain technology to significantly improve redemption convenience. Traditional MMFs took three to four days from redemption request to receiving funds, but blockchain-based systems will enable instant cash conversion 24 hours a day, 365 days a year. This is expected to improve fund management efficiency for investors, allowing them to utilize their investment capital more flexibly.
Other financial institutions are also weighing product launches. About 50 financial companies, including Japan's three major banks and securities firms, have been discussing various MMF products through the digital asset platform "Progmat." They are also considering ways to enable buying and selling of MMFs using stablecoins.
Nikkei said, "The revival of MMFs is expected to increase the inflow of retail funds seeking more favorable interest rates."
