Japan: Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis and Stress Testing the Financial Sector
IMF Staff Country Reports, September 18, 2017
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- Japan: Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis and Stress Testing the Financial Sector
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Bibliographic details
- Published: September 18, 2017
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484319819.002
Summary findings
- The Technical Note discusses the results of stress testing of the financial sector in Japan.
- The Japanese financial system appears generally resilient to short-term risks, but pockets of vulnerability exist.
- Overall, banks appear to have sufficient capital and liquidity buffers to cope with a scenario of severe recession owing to disruptions in global trade, and accompanied by a sharp increase in interest rates and risk premiums, and a decline in equity prices.
- Spillovers within the system also appear to be limited.
- Resilience is not equal among all institutions included in the analysis; some life insurance companies and regional banks may need to strengthen their capital buffers.
Stress test scenarios and outcomes
- Scenario described: severe recession owing to disruptions in global trade, accompanied by a sharp increase in interest rates and risk premiums, and a decline in equity prices.
- Outcome: banks generally maintain sufficient capital and liquidity buffers under the scenario.
- Outcome: system-wide spillovers are assessed as limited.
Vulnerabilities and institutions at risk
- Identified pockets of vulnerability include:
- Some life insurance companies.
- Some regional banks.
- Recommended focus: strengthening capital buffers for institutions identified as vulnerable.
Subject coverage and keywords
- Subjects: Banking; Financial institutions; Financial sector policy and analysis; Insurance companies; Solvency; Solvency stress testing; Stocks; Stress testing.
- Keywords include: Asia and Pacific; balance sheet; BoJ facilities; cash flow; City bank; CR; credit risk; financial system; funding shock; Global; hurdle rate; IMF staff calculation; Insurance companies; investment trust; ISCR; market liquidity risk; market liquidity shock; market share; return on assets; Solvency; Solvency stress testing; Stocks; stress test; Stress testing; U.S. dollar; U.S. dollar-liquidity analysis.
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- Country Report