BOJ, FSA tell U.S. concerned about Volcker rule impact on JGBs

TOKYO Jan 12 (Reuters) - The Bank of Japan and the nation's banking regulator have sent a letter to the U.S. government expressing concern about the adverse impact of the Volcker Rule on trading in Japanese government bonds (JGBs), the BOJ said on Thursday.

The restrictions proposed by the rule, which limits banks' trading with their own funds, would "raise the operational and transactional costs of trading in JGBs and could lead to the exit from Tokyo of Japanese subsidiaries of U.S. banks," said the letter addressed to U.S. monetary authorities.

"Some of the Japanese banks might be forced to cease or dramatically reduce their U.S. operations. Those reactions could further adversely affect liquidity and pricing of the JGBs."

The BOJ and the Financial Services Agency then called on Washington to expand the range of exempted securities substantially to include JGBs.

It was originally proposed by American economist and former Federal Reserve Chairman Paul Volcker to restrict U.S. banks from making certain kinds of speculative investments that do not benefit their customers.