IMF Staff Country Reports

This paper presents Financial System Stability Assessment of Japan Financial Sector Assessment Program. Japan’s large and globally well-integrated financial system has remained resilient through a series of shocks, including the coronavirus disease 2019 pandemic, aided by strong policy support and improved policy frameworks. The financial system is broadly resilient to a range of adverse macrofinancial shocks, though there are some areas of susceptibility. Banks and insurers are, in aggregate, well able to maintain their solvency position under a hypothetical adverse scenario comprising an increase in foreign and domestic interest rates and a decline in economic growth and asset prices. The evolving and challenging risk environment underscores the need to fill remaining gaps in the financial sector policy frameworks. Staffing resources need to be increased significantly to enhance the supervision and resolution of financial institutions. The supervisory agency should continue to develop its risk-based approach to banking supervision and should be provided with the power to set individual bank capital ratios above the minimum in response to a bank’s risk profile.