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The Microstructure of Japan fs Interbank Money Market: Simulating Contagion of Intraday Flow of Funds Using BOJ-NET Payment Data


  • Kei Imakubo

    (Financial Systems and Bank Examination Department, Bank of Japan (E-mail:

  • Yutaka Soejima

    (Payment and Settlement Systems Department, Bank of Japan (E-mail:


Under a real-time gross settlement (RTGS) system, there is an incentive for system participants to delay making their outgoing payments to facilitate their funding, and this creates the risk of settlement delays spreading throughout the entire system. Intraday credit facility and market practices have been established to avoid the risk and led to settlement concentration in the morning, as well as concentrations at the specific times due to other deferred net settlement (DNS) systems. The heterogeneity of intraday progress of settlements causes intraday fluctuation in interest rates. In this paper, we analyze and run simulations on the payment network to understand the intraday flow of funds within Japan fs interbank money market, especially recycling of the "receipt-driven payments." We find that (1) the shape of the payment network changes with the time of day, and payment recycling becomes more likely when the density of the network is high; (2) patterns of intraday payment flow differ across the three RTGS systems of the United States, the United Kingdom, and Japan, reflecting differences in each country fs system for, and underlying approach to, settlement and funding; and (3) participants comprising the hub of the payment network function as absorbers of contagion under a condition sufficiently stressful to cause a cascade of settlement delays.

Suggested Citation

  • Kei Imakubo & Yutaka Soejima, 2010. "The Microstructure of Japan fs Interbank Money Market: Simulating Contagion of Intraday Flow of Funds Using BOJ-NET Payment Data," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 151-180, November.
  • Handle: RePEc:ime:imemes:v:28:y:2010:p:151-180

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    References listed on IDEAS

    1. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
    2. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
    3. Lacker, Jeffrey M., 2004. "Payment system disruptions and the federal reserve following September 11, 2001," Journal of Monetary Economics, Elsevier, vol. 51(5), pages 935-965, July.
    4. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April.
    5. Iori, Giulia & De Masi, Giulia & Precup, Ovidiu Vasile & Gabbi, Giampaolo & Caldarelli, Guido, 2008. "A network analysis of the Italian overnight money market," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 259-278, January.
    6. James J. McAndrews, 2006. "Alternative arrangements for the distribution of intraday liquidity," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 12(Apr).
    7. Ulrike Elsenhuber & Claus Puhr & Stefan W. Schmitz, 2006. "Operational Risk and Contagion in the Austrian Large-Value Payment System ARTIS," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 11, pages 96-113.
    8. Beyeler, Walter E. & Glass, Robert J. & Bech, Morten L. & Soramäki, Kimmo, 2007. "Congestion and cascades in payment systems," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 384(2), pages 693-718.
    9. Ruilin Zhou, 2000. "Understanding intraday credit in large-value payment systems," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 29-44.
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    More about this item


    Real-time gross settlement; Payment recycling; BOJ-NET;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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