Japanese banks have reduced interest-rate risk and the financial system remains sound despite stresses seen in the US and Europe, the central bank said.
(Bloomberg) — Japanese banks have reduced interest-rate risk and the financial system remains sound despite stresses seen in the US and Europe, the central bank said.
“As banks have rebalanced their securities portfolios, the amount of yen and foreign currency interest-rate risk has been reduced,” the Bank of Japan said Friday in its semiannual Financial System Report. “Banks’ resilience to the risk of higher interest rates has been improving on the whole.”
The report provides the most thorough assessment of the financial industry by the Bank of Japan after global turmoil following the collapse of Silicon Valley Bank and emergency sale of Credit Suisse Group AG last month.
Rising foreign and domestic interest rates have led to valuation losses on bonds and other instruments, the central bank said. While such losses have declined since March, partly due to a drop in domestic rates, “they could increase again depending on developments in foreign interest rates and the resulting repricing of risky assets,” the BOJ said.
Japanese officials have said that the country’s banks are unlikely to experience the sorts of stresses faced by SVB, which collapsed after a flood of deposit withdrawals forced it to sell assets at a loss.
“There are no Japanese banks with a unique feature of liabilities similar to that of the failed US bank,” the BOJ said.
Still, there is a growing divergence among banks in the amount of their interest-rate risks and how they rebalance their portfolios, the central bank said.
“As uncertainty about future developments remains high, banks need to manage market risk appropriately based on changes in the risk profiles,” it said.
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