MNI BRIEF: BOJ's FSR Remains Alert To Broad Risks

The Bank of Japan on Thursday warned financial institutions to remain alert to a broad range of risks, even as it judged overall financial intermediation to be functioning smoothly, the latest Financial System Report showed.

“Uncertainties remain high regarding the formulation of economic policies in each jurisdiction, geopolitical risks, and developments in global financial markets,” the report said.

“From a long-term perspective, if structural factors remain, such as a decline in firms' loan demand reflecting the shrinking population and other factors, banks' profitability and loss-absorbing capacity could decline... and this could lead to a contraction of financial intermediation activities or an overheating, such as excessive search for yield,” the report said.

Still, the BOJ said its prolonged monetary easing has not caused significant imbalances.

“Financial intermediation has continued to function smoothly,” it said, noting that corporate demand for loans remains firm and banks’ lending stance remains active. “Under such circumstances, no major financial imbalances have been seen in current financial activities.”