Two years ago a reliable source at a well-known institution faxed us a document. As it was difficult to verify its details, we felt it inappropriate to publish it. Now that similar deals are the subject of investigation by Japan's Financial Supervisory Agency (FSA), it may be useful to give the document an airing.
The document makes clear just how much money derivatives dealers made in Japan by structuring complex bonds and then, when the punts went wrong, helping investors hide their losses.It also suggests that dealers structured deals at the request of the investor on the understanding that this was with the full knowledge, even the encouragement, of Japan's ministry of finance.
Japanese investors don't learn. They are now boosting yields by taking even more leveraged currency and interest rate bets using the MTN market' latest creations, callable power-reverse dual currency notes.
