{
  "title": "Japan: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis and Stress Testing",
  "publication": "IMF Staff Country Reports, May 13, 2024",
  "sourceUrl": "https://www.imf.org/en/publications/cr/issues/2024/05/10/japan-financial-sector-assessment-program-technical-note-on-systemic-risk-analysis-and-548795",
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  "summary": "This Technical Note discusses Systemic Risk Analysis and Stress Testing for the Japan Financial Sector Assessment Program (FSAP).",
  "sections": [
    {
      "heading": "Overview and Scope",
      "content": "- This Technical Note discusses Systemic Risk Analysis and Stress Testing for the Japan Financial Sector Assessment Program (FSAP).\n- The FSAP assessed the financial sector’s resilience with a comprehensive scenario-based systemic risk analysis.\n- The systemic risk analysis comprised a comprehensive set of stress testing exercises covering the financial and nonfinancial sectors.\n- 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.\n- 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."
    },
    {
      "heading": "Key Findings and Vulnerabilities",
      "content": "- Financial system broadly resilient to a range of macrofinancial shocks, per scenario-based analysis.\n- Areas of susceptibility include:\n  - Market risk.\n  - Foreign currency (FX) liquidity risk.\n  - Sizable exposures of financial institutions to domestic and foreign securities.\n  - Banks’ FX liquidity needs.\n- The challenging risk environment underscores the need to strengthen systemic risk monitoring and analysis by the Japanese authorities."
    },
    {
      "heading": "Stress Testing and Analytical Approach",
      "content": "- Employed a comprehensive scenario-based systemic risk analysis.\n- Stress testing exercises covered both financial and nonfinancial sectors.\n- Emphasis on collecting and analyzing banks’ securities holdings, including:\n  - Interest rate hedging positions.\n  - FX positions."
    },
    {
      "heading": "Policy Recommendations and Monitoring Priorities",
      "content": "- Strengthen the Japanese authorities’ systemic risk monitoring and analysis.\n- Continue to collect information on banks’ securities holdings, including interest rate hedging and FX positions.\n- Carefully monitor risks from:\n  - Sizable exposures of financial institutions to domestic and foreign securities.\n  - Banks’ FX liquidity needs.\n\n---\n\n Content in this bundle\n\n- Executive Summary\n  - Executive Summary (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Executive Summary (PDF){rel=\"external\" type=\"application/pdf\"}"
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    "[Markdown version](/en/publications/cr/issues/2024/05/10/japan-financial-sector-assessment-program-technical-note-on-systemic-risk-analysis-and-548795/index.md)",
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    "Published: May 13, 2024",
    "Series: IMF Staff Country Reports",
    "DOI: https://doi.org/10.5089/9798400275593.002",
    "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.",
    "Financial system broadly resilient to a range of macrofinancial shocks, per scenario-based analysis.",
    "Areas of susceptibility include:",
    "The challenging risk environment underscores the need to strengthen systemic risk monitoring and analysis by the Japanese authorities.",
    "Employed a comprehensive scenario-based systemic risk analysis.",
    "Emphasis on collecting and analyzing banks’ securities holdings, including:",
    "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:",
    "**Executive Summary**"
  ],
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