FSA Sato - Action in response to global market turmoil
18 September 2008
The early implementation of Basel II was one of the reasons for the comparatively small and indirect impact on Japan's financial sector, Sato said and warned that it will take a decent time for the situation to return to normal.
The early implementation of the Basel II framework in Japan was one of the reasons for the comparatively small and indirect impact on Japan's financial sector, Sato said. “Thus, the lesson learned from this episode is, I believe, the value of a forward-looking approach in regulation and supervision.”
“It will take a decent time for the situation to return to normal”, Takafumi Sato, Commissioner of the Japanese FSA said in a speech held on 11 September in Tokyo. The prolonged weakness in the U.S. housing market, the lack of any sign of recovery in the structured product market, tightening lending attitudes, the deteriorating performance of the real economy, and the concurrent risk of inflation are contributing to the negative outlook for an early end of the turmoil, he said.
He repeated that the direct impact of the subprime loan crisis on the Japanese financial sector has so far been relatively small compared to the U.S. and European ones. “The subprime loan crisis alone is unlikely to pose a serious threat to Japan's financial system”, he said. However, a more imminent risk is its deteriorating economic condition caused by worsening terms of trade due to rising commodity prices, he underlined.
“My sense is that implementing the FSF recommendations in this context might create a financial universe where we can discover a new model of financial business, one that is more firmly based on value-adding activities in the real economy”, Sato said. “In this regard, there is a huge growth potential for financial markets in Asia, where a high rate of economic expansion is still maintained through the creation of real value”, he continued. “The next challenge for financial institutions in Asia will be to exploit such an opportunity by strengthening the capability of financial intermediation ideally suited to serving that objective in the future.”
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