Japan: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis and Stress Testing
IMF Staff Country Reports, May 13, 2024
Source details
- Canonical URL
- Japan: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis and Stress Testing
Other formats
Bibliographic details
- Published: May 13, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400275593.002
Overview and Scope
- This Technical Note discusses Systemic Risk Analysis and Stress Testing for the Japan Financial Sector Assessment Program (FSAP).
- The FSAP assessed the financial sector’s resilience with a comprehensive scenario-based systemic risk analysis.
- The systemic risk analysis comprised a comprehensive set of stress testing exercises covering the financial and nonfinancial sectors.
- The FSAP’s scenario-based risk analysis suggests that the financial system is broadly resilient to a range of macrofinancial shocks, though there are some areas of susceptibility.
- The Japanese financial system stands at a critical juncture amid an evolving macroeconomic environment, facing, in particular, market risk and foreign currency (FX) liquidity risk.
Key Findings and Vulnerabilities
- Financial system broadly resilient to a range of macrofinancial shocks, per scenario-based analysis.
- Areas of susceptibility include:
- Market risk.
- Foreign currency (FX) liquidity risk.
- Sizable exposures of financial institutions to domestic and foreign securities.
- Banks’ FX liquidity needs.
- The challenging risk environment underscores the need to strengthen systemic risk monitoring and analysis by the Japanese authorities.
Stress Testing and Analytical Approach
- Employed a comprehensive scenario-based systemic risk analysis.
- Stress testing exercises covered both financial and nonfinancial sectors.
- Emphasis on collecting and analyzing banks’ securities holdings, including:
- Interest rate hedging positions.
- FX positions.
Policy Recommendations and Monitoring Priorities
- Strengthen the Japanese authorities’ systemic risk monitoring and analysis.
- Continue to collect information on banks’ securities holdings, including interest rate hedging and FX positions.
- Carefully monitor risks from:
- Sizable exposures of financial institutions to domestic and foreign securities.
- Banks’ FX liquidity needs.
Content in this bundle
- Executive Summary