BOJ mulls accepting foreign bonds as collateral - Nikkei

NEW YORK, May 18 (Reuters) - The Bank of Japan is considering allowing financial institutions to put up U.S. Treasury bonds and other foreign debt instruments as collateral for open-market operations, the Nikkei business newspaper reported on its website.

The central bank's policy board will debate the proposal at its two-day monetary policy meeting beginning Thursday, the paper said.

Japanese government bonds and other yen-denominated instruments are accepted as collateral for the BOJ's funding operations for financial institutions. The bank rarely makes loans collateralized by foreign bonds. The last time was about a decade ago, when it accepted U.S. Treasury bonds briefly, according to the Nikkei.

By expanding the range of acceptable collateral, the BOJ may give financial institutions greater flexibility to access the lending facility. The BOJ would provide yen-denominated funds in exchange for the foreign bonds. Japanese units of foreign banks would also be able to borrow from the BOJ using their holdings of foreign bonds, according to the paper. (Reporting by Vivianne Rodrigues; Editing by Kenneth Barry)