This is because price movements in government securities tend not to be procyclical, and haircuts on government securities are zero or close to zero for most transactions. Unlike in the United States, where a considerable amount of repos uses ABSs, government securities are mainly used in Japan (Charts 6 and 7).
For this reason, the implementation of numerical haircut floors would have little impact on the repo market in Japan. The second measure requested by the FSB concerns methodology standards. Regulatory authorities are required to establish qualitative standards for the methodologies that market participants use to calculate haircuts, incorporating stress scenarios.