General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
November 27, 2018

IMF published its staff report and selected issues report under the 2018 Article IV Consultation with Japan. Directors recognized the challenges facing the financial sector, especially from demographic pressures and low interest rates. They welcomed the progress made in implementing the 2017 FSAP recommendations, particularly the new more forward-looking supervisory framework. Directors highlighted the importance of enhancing risk management, financial oversight, and the macro-prudential framework.

The staff report highlights that the Japanese Financial Services Agency (JFSA) is moving toward a new forward-looking and dynamic supervisory framework. Implementation of certain FSAP recommendations—particularly on macro-prudential policies and crisis management and resolution—is incomplete. The overall banking sector remains well-capitalized and liquid. Nonetheless, the amount of risks taken by some financial institutions have exceeded their capital levels. Market risks from a large decline in equity prices or a sharp rise in Japanese Government Bond (JGB) yields could lead to substantial losses for major banks and life insurers, while solvency concerns and higher risk taking due to demographic challenges and low interest rates are more severe for regional banks. The riskiness of credit allocation has increased significantly in recent years on the back of strong growth in lending to small enterprises and has exceeded the levels seen during the global financial crisis. Moreover, banks have increased substantially their holdings of investment trusts while long-term investors have stepped up their risk taking in foreign securities. Risks associated with these activities should be carefully monitored and assessed against financial institutions’ risk management capacity.

The assessment suggests that the financial sector policies should be enhanced to contain the build-up of systemic risks in line with the 2017 FSAP recommendations. Capital requirements should be better tailored to an individual bank’s risk profiles, corporate governance could be further strengthened across the banking and insurance sectors, and an economic-value-based solvency regulation for the insurance sector should be introduced. The recent move of JFSA to include four more banks in its stress testing framework is welcome, while the macro-prudential framework should be further strengthened in line with FSAP recommendations.

Additionally, the recent stress testing conducted by the Bank of Japan highlighted authorities’ concerns over the impact of low profitability on capital levels and increased lending to financially vulnerable firms. It is recommended that strengthening the crisis management and resolution framework would help reduce expectations of public support and facilitate the smooth exit of unviable financial entities. Also, JFSA recently expanded the total loss-absorbing capacity (TLAC) requirement to one domestic systemically-important bank; it could further facilitate financial institutions’ efforts to leverage fintech and should continue to strengthen crypto-asset oversight.


Related Links

Keywords: Asia Pacific, Japan, Banking, Insurance, Article IV, FSAP, Stress Testing, Macro-prudential Framework, JFSA, IMF

Related Insights

OFR Adopts Data Collection Rule on Centrally Cleared Repo Transactions

OFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.

February 20, 2019 WebPage Regulatory News

FHFA Finalizes Rule on Federal Home Loan Bank Capital Requirements

FHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.

February 20, 2019 WebPage Regulatory News

SRB Publishes Framework for Performing Valuations in Resolution

The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 19, 2019 WebPage Regulatory News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News

SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS

SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.

February 15, 2019 WebPage Regulatory News

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News

US Agencies Amend Regulatory Capital Rule to Allow Phase-In for CECL

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology.

February 14, 2019 WebPage Regulatory News

FASB Proposes Taxonomy Improvements for the Credit Losses Standard

FASB proposed the taxonomy improvements for the proposed Accounting Standards Updates on Targeted Transition Relief for Topic 326 (Financial Instruments—Credit Losses) and Topic 805 (on Business Combinations—Revenue from Contracts with Customers).

February 14, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2617