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Japan is gradually influenced in terms of financial intermediation function and robustness, mainly through the growing losses on securities and the rise in credit costs, the Bank of Japan outlines in its assessment of the current state of Japan’s financial system.
Since the autumn of 2008, financial conditions for firms' funding have been severe as seen in the declining function of CP and corporate bond markets. Against such a backdrop of the firms' severe financial conditions on the whole, Japan's financial institutions have retained the financial intermediation function accordingly, by supporting firms which have difficulty funding from capital markets.
There is growing concern over the level of profits of financial institutions, and it is necessary to monitor closely how the banking sector will carry out the financial intermediation function adequately while it achieves sufficient robustness, BoJ states.
With regard to the robustness of the financial system, there has been an increase in credit risk, which had previously been in decline, for the major banks and the regional banks. In addition, market risk associated with stockholdings has increased for the major banks, and interest rate risk has increased for the regional banks.
Japan carried out various policy measures in response to the turmoil in the global financial markets. First, in terms of capital reinforcement of financial institutions, the act for strengthening financial functions was amended to establish a framework for public funds utilization. In addition, a partial relaxation of capital adequacy requirements, an expansion of the emergency guarantee system aiming at supporting firms' funding, and revisions of accounting standards regarding fair value evaluation and reclassification of holding bonds were put into effect.