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TOKYO (MNI) - The Bank of Japan's prolonged easy policy, including large
scale asset purchases, hasn't caused an overheating as observed during the
bubble period of the late 1980s, the central bank's biannual Financial System
Report released Monday said.
However, the FSR warned that financial institutions' core profitability is
falling and regional banks' capital adequacy is falling.
"In a stress event, downward pressure on the economy from the financial
system -- a decrease in financial institutions' risk taking -- would be more
likely to intensify than in the past," the FSR said.
"Financial institutions that have actively engaged in risk taking, in areas
such as lending to middle-risk firms and the real estate sector, as well as
securities investment, could experience larger declines in their capital because
of credit costs and losses on securities," the report added.
Speaking Friday, BOJ Governor Haruhiko Kuroda said financial conditions
remain very accommodative, but there are no signs of overheating asset prices
and economic activities.
--NO CHANGE IN POLICY
The FSR will not trigger the BOJ board into quickly considering an
adjustment to its powerful easy policy in order to mitigate any side-effects and
the board will maintain the view that benefits of easy policy are greater than
Other key points from the FSR:
--The core capital ratios for domestic banks have gradually declined
recently as banks haven't increased profits equivalent to risks.
--Some financial institutions' capital levels are lower than their held
amounts of integrated risk.
--Financial institutions are resilient on the whole. However, comparing the
latest stress test result with previous ones, financial institutions' net income
and capital adequacy ratios have been gradually decreasing.
--The real estate loans to GDP ratio has reached a historical high,
deviating from its trend.
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