IMF Staff Concluding Statement on 2017 Article IV Mission with Japan

Enhanced financial oversight frameworks would help contain emerging risks. Internal processes need to be further developed to support full risk-based prudential supervision, and corporate governance needs to be strengthened across the banking and insurance sectors. Moreover, capital requirements need to be more tailored to individual bank risk profiles. Further steps should be taken to implement an economic-value-based solvency regime for the insurance sector, as certainty about the future regime would help companies to adjust their business and investment strategies. The macro-prudential framework could be further strengthened by clarifying the mandate of the Council for Cooperation on Financial Stability and proactively expanding the macro-prudential toolkit.

The crisis management and resolution framework could be strengthened further. The complexity of the framework and ambiguities regarding the circumstances under which different regimes of the framework would be used, could prove challenging for implementation, and may thereby fuel expectations of public support. Further steps to ensure that supervisory powers are deployed without delay should be embedded more firmly in the authorities’ framework for early intervention. Expansion of the resolution toolkit, enhancement and clarification of the legal framework (including its extension to central counterparties), and improvements in operational aspects would improve authorities’ readiness and help steer market expectations and incentives. The authorities are encouraged to further engage with bank boards and senior management to ensure banks fully understand the implications of underlying trends for future viability, and act promptly to facilitate the exit of unviable firms. They are also encouraged to facilitate the transition of regional banks to higher fee-based income.

The concluding statement describes the preliminary findings of IMF staff at the end of an official staff visit, in most cases to a member country. The views in this statement also reflect the findings of the Financial Sector Assessment Program (FSAP), which was conducted by the IMF during September 2016-April 2017. Countries with financial sectors that are considered systemically important, such as Japan, must undertake a mandatory stability assessment every five years.

Related Link: Concluding Statement

Keywords: Asia Pacific, IMF, Japan, Insurance, Banking, Financial Stability, Article IV, FSAP