Recommendation to improve financial market
– Experiences from Japan
1. The Japanese present financial system – challenges and solutions
1.1. General evaluation of the Japanese current financial system
Although suffering the global financial crisis in 2008, the Japanese financial market is steady. The loan market to company gets better after some bad signal in the period 2008-2009. But, the risks of long term financial instruments, say bond, tend to go up. Specially, the effect of 2008 crisis leads an appreciation of the Yen about 67% against GBP and 75% against South Korea’s won. As a result, Japanese export goods like electronic devices turned to be more expensive, which led to the lower net-export. The car turnovers hit a new low since 1974.
Challenges for the Japanese financial system don’t happen for the first time but have added through the years.
- The Japanese financial institutions need to ensure the stability of basic profit, promote business by active risk management and control.
- The financial institutions need to have countermeasures to cope with market risks which come along with bond holding. One easy-to-see point is that unsecured bond holding can affect profit and bank losses mostly come from bond holding which exceed the profits gained from main business activities in the previous two years.
- The Japanese financial institutions should raise capital through recapitalization and profit accumulation.
- In finally, the financial institutions should prepare sound basics for the management of financial intermediary function. For the long-term economic development of Japan, the financial institutions must re-identify their potential growth rate and provide financial services efficiently.
1.3. Countermeasure policy
In the context of worsened economic and financial situation, the government and BOJ has tried their best to implement financial and monetary policies and stabilize the financial system until the end of the financial year 2009.
- Firstly, focusing on unemployment problem, financial measures and front loading for public works project in the “Policy Package to Address Economic Crisis” in April, 2009. One important part of this project is to promote using special methods to strengthen financial intermediary function.
- In order to support finance for small enterprises, Credit Guarantee Association provided 20 thousand billion yen as emergency guarantee instrument. The total value of these instruments are 30 thousand billion yen. The Japanese Financial Association also supplied 3 thousand billion yen to ensure the security and efficiency of lending network. For this purpose, Shoko Chukin bank added 2.4 thousand billion yen.
- In financial field, to support the economy, right after the 3rd quarter of 2008, BOJ proposed some methods such as interest rate policy reduction, measures to stabilize the financial market, finance supply to enterprises. BOJ also decided to resume its purchases of...