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Despite some jitters, BOJ sees financial system as 'sound and resilient'

By Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s financial system remains “robust and resilient” despite heightened jitters in the western financial sector amid U.S. bank failures in March , the Bank of Japan said in its semi-annual report on the financial system.

However, the central bank also said that it is necessary to remain vigilant about tail risks.

“Future developments remain highly uncertain as financial and capital markets remain tight,” the bank said in its financial system report. “While the quality of banks’ domestic and foreign loan portfolios remains generally high, some loans carry high credit risk.”

Japanese policymakers have deep-rooted painful memories of initially underestimating U.S. investment The impact of the collapse of bank Lehman Brothers in 2008 has been described as a “bee sting”.

Ultimately, the collapse of Bank of America developed into a full-blown global financial crisis.

Japanese policymakers and analysts see the collapse of two US banks as a departure from the previous financial crisis, which stemmed from subprime mortgage lending and triggered a credit crunch.

The recent banking problems come against the backdrop of an aggressive tightening of monetary policy in the United States after years of easy monetary policy.

“In order to ensure the stability of Japan’s financial system, it is necessary to examine the risks of contraction and overheating of the financial system and appropriately address potential loopholes,” the bank said. The influence of social media in spreading credit concerns increases the risk of triggering a bank run.

The minister also revealed that about 133 billion yen (1. billion) of Credit Suisse’s additional tier one bonds or contingent convertible bonds, so-called CoCo bonds, were sold to wealthy domestic investors in Japan.

“The underlying financial markets have returned to calm,” Suzuki said. “Unfortunately some investors have been affected. Given the reduced principal, it is important for brokers selling products to respond to clients in a gracious manner.”

($1=133.8100 Yen)



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