In 1987, the Ministry of Finance (MOF) allowed brokerage houses to short sell bonds that had already been traded (when issued). A resolution of the Board of Governors of the Japanese Securities Dealers Association (JSDA) on bond short selling and borrowing and lending transactions was developed. Under the JSDA resolution, securities need to be repurchased before the delivery date or the borrowed securities must be delivered through repurchase measures. Details of bond short selling—including contract format, bond lending fee, deposit amount, settlement details, default countermeasures, and other details—are stipulated in the resolutions of the Board of Governors.

The Cabinet Order for Enforcement of Securities and Exchange Law does not cover the over-the-counter (OTC) short selling of bonds. As for listed securities, Article 162 of the Securities and Exchange Law; and Articles 26-2, 26-3, and 26-4 of the Cabinet Order for Enforcement of Securities and Exchange Law stipulate requirements for short selling.

The resolution does not prohibit JSDA members from short selling bonds with institutional investors, individual investors, foreign investors, or any domestic institutions as their counterparts.

The National Diet, Cabinet Council, and Financial Services Agency (FSA) are in charge of revising the relevant legal regulations. Article 162 of the Securities and Exchange Law; and Articles 26-2, 26-3, and 26-4 of Cabinet Order for Enforcement of Securities and Exchange Law will be posted on this site as soon as they become available.

FSA strengthened short-selling restrictions in February 2002 with the objective of further enhancing the confidence of individual investors in securities markets in compliance with the Program for Structural Reform of Securities Markets, which was announced in August 2001. This resulted from some securities companies having violated short-selling restrictions, and was not intended to affect the market price of stocks.

The measure to strengthen short-selling restrictions has been successful in preventing unfair transactions in the market. Meanwhile, FSA also plans to continue monitoring the markets to prevent such transactions.

The Japanese Government Bond (JGB) futures market has expanded rapidly and is now regarded as one of the most active in the world. The Tokyo Stock Exchange (TSE) offers trading on 10-year JGB futures contracts. The implementation of these futures contracts is a response to market participants' growing need for a tool to manage interest rate risk.

Indicative credit default swap (CDS) rates are provided for major Japanese corporations at the website linked below.