Japan Finance Ministry, BOJ Ready To Respond On Bank Sector Woes

BOJ Governor Haruhiko Kuroda hands over the reins to Kazuo Ueda next month.
<div class="paragraphs"><p>The Bank of Japan headquarters in Tokyo, Japan, on Monday, April 25, 2022. </p></div>
The Bank of Japan headquarters in Tokyo, Japan, on Monday, April 25, 2022.

Senior Japanese officials from the finance ministry, central bank and financial watchdog said they are ready to respond if needed in the wake of recent turmoil in the global banking industry.

A coordinated front was particularly important given possible risks during the leadership transition at the Bank of Japan, said Masato Kanda, a senior official for international affairs at the finance ministry. BOJ Governor Haruhiko Kuroda hands over the reins to Kazuo Ueda next month.

“Markets face various risks during the BOJ’s leadership change, and it’s important for the government and the BOJ to coordinate seamlessly and stand fully ready to respond,” Kanda said after an unscheduled meeting between the three key institutions.

While senior government officials have so far played down the likely impact of the failure of regional US banks including Silicon Valley Bank, the meeting points to concern over the fallout of financial-sector turbulence that has also hit Credit Suisse Group AG.

“The government will remain mindful of various possible risks,” Prime Minister Fumio Kishida said during a press conference in the evening. “We will continue to monitor developments in the domestic and international economy and financial markets with a strong sense of vigilance.”

An index of Japanese banks just capped its worst week since April 2020, falling 11%, outpacing the broader Asia ex-Japan financials gauge, which only dipped 0.8%. On top of worries over contagion from global woes, investors are also concerned about the outlook for the BOJ’s monetary policy. A dovish path would usually be negative for lenders’ profit growth. 

“The government wants to keep in mind that there are various risks, coordinate with the BOJ and our counterparts abroad and carefully watch with a sense of urgency developments in economic financial markets and any impact on Japan’s economy,” Kanda said after the first three-way meeting since September. 

He noted “risk-averse moves” in markets following the problems with banks in the US and Europe. The domestic financial system was largely stable and its institutions had ample liquidity and capital, he added.

Other attendees included BOJ executive directors Shinichi Uchida and Tokiko Shimizu, and FSA Commissioner Junichi Nakajima, according to the finance ministry. 

Global markets have been rocked by the financial-sector jitters even after the Swiss National Bank provided a $54 billion credit line to Credit Suisse. US authorities have also been trying to stabilize the regional banking sector, most recently through the deposit of $30 billion by major lenders into First Republic Bank.

Some analysts believe Japanese bank stocks have been oversold. They have very diverse funding profiles, without outsized concentration in a single industry or segment, said Pri De Silva, a senior credit analyst at Bloomberg Intelligence. 

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(Updates with comments from Prime Minister Kishida)

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