IMF Conducts Stress Tests on Japanese Banks |
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January 5, 2012
The International Monetary Fund is conducting stress tests on Japanese banks to gauge how vulnerable they are to a potential drop in the value of their huge holdings of Japanese government bonds, people familiar with the matter said, a move that could sharpen investors' focus on the risk to Japan's economy from its ballooning debt.
Credit-ratings firms, investors, and even Japan's central bank governor have expressed concerns about the growing debt, now equal to about twice the country's annual economic output, but much of the attention has been on the government's ability to sustain its large budget deficits.
The IMF's tests may shed more light on another danger: the massive exposure of the Japanese financial system to JGBs and how much damage a rise in bond yields could inflict on Japanese banks. This comes as governments around the world are particularly sensitive to vulnerabilities in the financial system and to their own finances, in light of the euro-zone debt crisis.
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