BOJ: Japan's financial system stable despite the pandemic risks on the economy

Dhwani Mehta FXStreet

In its Financial System Report published on Thursday, the Bank of Japan (BOJ) said that Japan's financial system is stable as a whole though pandemic is having a big impact on the economy and finance.

Additional takeaways

Financial institutions in good shape as a whole, financial intermediation functioning smoothly.

Japan's financial system is likely to remain highly robust even in resurgence of covid-19, adjustment in global financial markets.

In event of substantial, rapid market adjustment, deterioration in financial institutions' soundness could pose further downward pressure on economy.

Attention should be paid to developments in real estate industry which increased lending since pre-pandemic.

Credit risk of overseas loans generally contained, but signs of deterioration in some portfolios severely affected by pandemic.

Potential destabilisation of foreign currency funding among risks to Japan’s financial system.

Even after pandemic subsides, low interest rates and structural factors will continue to exert downward pressure on financial institutions' profits.

Market reaction

USD/JPY is dropping to test 114.00, as the US Treasury yields recede gains amid worsening market mood. The spot was last seen trading at 114.01, down 0.20% on the day.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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