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(Z1)‌‌ Support Appears Exposed

MNI (London)
--Repeat of story originally published at 0603GMT April 17
     TOKYO (MNI) - Despite rapid growth in real estate loans, the Bank of Japan
still sees financial and economic activities as a whole showing no signs of
overheating such as seen through the late 80's 'bubble', the BOJ's biannual
Financial System Report released Wednesday said.
     However, the report said "possible vulnerabilities of the real estate
market warrant close attention."
     The latest FSR again pointed to the accumulated risks caused by  prolonged
easy policy, but the comments will not prompt the BOJ board to unwind it anytime
soon.
     The report also said regional financial institutions have generally not
been able to secure profits commensurate with the increase in risk-weighted
assets, while their capital adequacy ratios and stress resilience have declined
moderately."
     "Should this situation persist, downward pressure on the real economy from
the financial system could intensify in the event of stress, as the capital of
financial institutions would decrease substantially due to increased credit
costs and securities-related losses," the report warned.
     --DOMESTIC PROFITS
     The report also said that the profitability of domestic deposit-taking and
lending activities has continued to decline, mostly caused by structural factors
such as lowered growth expectations and the secular decline in loan demand, as
well as the prolonged low interest rate environment."
     --HEAT MAP
     As MNI forecast earlier this month, the FSR's heat map shows that the real
estate loans to GDP ratio turned "red," signalling an overheating for the first
time since the end of 1990.
     The BOJ doesn't see the red indicator as meaning there is a bubble in the
sector and, having expected such a move, the bank will not take it too
seriously.
     --DOWNSIDE TAIL RISK
     The latest report also said, "The recent expansion in the financial cycle
has contributed to an increase in the downside tail risk from a somewhat
longer-term perspective by building up pressure on balance sheet adjustments on
the back of the cumulative effects of low interest rates."
     It also said, "Some signs of changes are observed: credit costs appear to
have begun increasing, albeit they are still at low levels, and investment in
securities has also seen losses in foreign bonds and a decrease in room for
realizing gains on securities."
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
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MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com