Japan`s Policy for International Financial

世界金融危機と日本
チャンスと課題
慶応義塾大学
２００９年１月１０日
白井早由里
Structure of Presentation
• State of Financial and Capital Markets
Part 1 Before the Subprime Loan Crisis
Part 2
• Impact of the Subprime Loan Crisis
• Chances and Challenges for Japan and
Part 3 East Asia
2
Part 1. State of Financial and Capital Markets
Before the Subprime Loan Crisis
Foreign Stocks Held by US Investors
As of end-2007
Counrty/Region
UK
Japan
France
Germany
…
Korea
Hong Kong
China
…
Total Common Stocks
of which:
Europe
Asia
Latin America
4
Amount
(Billions $)
638
526
346
318
125
118
96
% of Domestic
Market Capitalization
18
12
12
15
11
10
2
4,956
% of Total Common Stock
2,484
50
1,182
24
205
4
Source: Prepared based on US Treasury data.
US Stocks Held By Foreign Investors
As of June 2007
Country/Region
UK
Canada
Cayman Islands
Luxembourg
Japan
…
Total
Of which:
Europe
Latin America
Asia
5
Amount
% Total
(Billions $) Foreign Holdings
421
13
347
11
279
9
235
8
220
7
3,130
100
1,594
871
560
51
28
18
Limited Currency Mismatches on US Side
As of Dec. & June 2007
US Holdings of
Foreign Holdings of
Foreign Debt Securities US Debt Securities
Currency
Billions $ % Total Billions $ % Total
US dollar
1,499
76
5,874
88
Euro
199
10
435
7
Canadian dollar
58
3
27
0
Japanese yen
67
3
82
1
UK pound
62
3
133
2
…
…
Total
1,964
100
6,642
100
6
US Securities Held By Foreign Investors
by Type of Securities and Originating Country
As of June 2007(Billions $)
Treasury LT Debt
Japan
China
Luxembourg
…
Total
Total Outstanding
% Foreign Holdi ng
7
Agency LT Debt
553 China
467 Japan
45 Luxembourg
…
1,965 Total
3,454 Total Outstanding
57 % Foreign Holdi ng
Corporate LT Debt
Stocks
376 UK
405 UK
421
229 Luxembourg
340 Canada
347
39 Belgium
321 Cayman Islands
279
…
…
1,305 Total
2,737 Total
3,130
6,105 Total Outstanding 11,391 Total Outstanding 27,768
21 % Foreign Holdi ng 24 % Foreign Holdi ng 11
Growing Foreign Reserves in East Asia
(% World Foreign Reserves)
60
50
1980
2007
40
30
20
10
0
8
Asia
Japan
China
other Asia
Cross-Border Banking Activities
(June 2008)
(Billions of US Dollars)
External Assets External Liabilties
Japan
2,541
758
United States
3,016
3,556
United Kingdom
6,682
7,210
France
3,044
3,016
Germany
3,888
2,206
Siganpore
838
856
Hong Kong
757
495
9
Source: Prepared Based on BIS data.
US and Asia’s Foreign Asset Composition
As of 2007
US
FDI
Equity
Financial Derivatives
Debt Securities
Loan&Deposits
Foreign Reserves
Total
10
19%
29%
13%
11%
24%
2%
100%
Japan China Hong Kong Korea Singapore
10%
5%
38%
11%
19%
11%
1%
19%
18%
14%
1%
-2%
--36%
10%
10%
9%
9%
24%
18%
26%
17%
40%
18%
67%
6%
45%
18%
100% 100%
100% 100%
100%
Source: Prepared Based on CEIC and US Gov. data.
The Pattern of Capital Flows Before
the Subprime Loan Crisis
11
Summary and Additional Points in Part I
1.
US investment in foreign stocks was active and large
 Europe > Asia > Latin America
2.
US investment in foreign stocks was greater than foreign
investment in US stocks

3.
US government, agency, and firms were able to issue a large
amount of LT bonds in US dollar

4.
Europe: 2484 vs 1594, Asia: 1182 vs 560 ($ billions)
US creditors faced a limited degree of currency mismatch
US actively invested in foreign LT bonds issued in Cayman Islands
(24%), UK (19%), and Australia (4%); and largely in US dollar

A decline in US investment would lead to the shortage of US dollars
 US investors faced a limited degree of exchange rate risk
12
US was risk-taker (investing actively in foreign stock markets, while
raising funds internationally through bond markets)
6. Europe was risk-taker (investing actively in US stocks, corporate
bonds, ABS, CDO, etc.)
7. Asia was risk-averse (investing actively in US treasury securities and
agency bonds)
8. Foreign ownerships of domestic stocks were large in many countries
(% of total domestic stocks): 30% (Japan), 40% (Korea)  11% (US)
9. Cross-border banking activities were undertaken largely by US and
European banks
 UK banks played the most important intermediary role in terms of
circulating bank money (mainly through accepting foreign deposits
and investing in foreign deposits)
 Japanese banks were most active among Asian banks, but their
activities were largely concentrated on the asset side
5.
13
Part 2. Impact of the Subprime Loan
Crisis
Write-offs by Major Financial Institutions
Have Concentrated in US and Europe
United States
Citigroup
Merrill Lynch
UBS
Morgan Stanley
Wachovia
Bank of America
Washington Mutual
JP Morgan Chase
Wells Fargo
55
52
44
27
23
21
15
14
10
Europe
HSBC
Credit Suisse
Royal Bank of Scotland
IKB Deutch
Deutsche Bank
27
11
15
15
11
15
As of October 2008
(Billions of US dollars)
World
US
Europe
Asia
686
431
228
27
As a Result,
 A decline in US investment abroad has occurred mainly through
cross-border banking activities
A reduction in foreign bank loans and bank deposits by US banks
Also, a reduction in foreign bank deposits by US firms
Adversely affected other countries’ banking activities (e.g. Korea)
 A decline in foreign investment in US has also emerged mainly
through cross-border banking activities
Cuts in bank loans to US banks and firms, as well as bank deposits
Adversely affected credit availability and real economy in US
※ Cross-border banking activities have dropped significantly on the global
level
16
US Investment Abroad ($ Millions)
300,000
Outward FDI
Foreign Securities Investment
200,000
Loans&Deposits
100,000
0
2007:I
2007:II
2007:III
2007:IV
2008:I
2008:II
2008:III
-100,000
-200,000
※Minus indicates net outflows
※Minus indicates net outflows
-300,000
-400,000
17
Source: Prepared based on IMF data
Foreign Investment in US ($ Millions)
400,000
Inward FDI
300,000
Securities Investment (excl. Treasury Securities)
Loans&Deposits
200,000
100,000
0
2007:I
2007:II
2007:III
2007:IV
2008:I
-100,000
-200,000
※Plus indicates net inflows
-300,000
-400,000
18
※Plus indicates net inflows
2008:II
2008:III
Limited Exposure of Japanese Banks to
Structured Credit Products
As of June 2008
(Billion US dollars)
Structuerd Credit Products
Book value
Unrealized losses
Realized losses
of which:
Subprime Related Products
Book value
Unrealized losses
Realized losses
Tier-1 Capital
19
235
10
15
10
1
8
501
Source: Prepared based on the Financial Services Agency data.
Factors Contributing to Limited Direct Damages in Japan
 Small Banks’ Losses (caused directly by subprime loan crisis)
 No removal of firewalls among banking, securities, and insurance
 Cautious behavior (lessons from the banking crisis in the 1990s)
 Dominant commercial banking  Growing investment banking in US
 Heavy reliance on deposits  increasing wholesale finance in US and Europe
 Earlier acceptance of Basel II (from end-2006) than US and Europe
 Non-Existence of Serious Real Estate Bubbles in Japan
 Greater Scale of Real Estate Bubbles in US (90% increase) in 2000-07
than Japan (50% increase) in 1985-90
 Small Household Debt Problems
=> Low Household Debt/GDP Ratios: Japan 70%  100% (US), 100% (UK), 110% (Australia)
 Limited Cross-Border Liabilities by Banks ($ billion, Sep. 07):
660 (Japan)  6,943 (UK), 3,554 (US), 2,644 (France), 2,013 (Germany)
※ Greater Cross-Border Assets by Banks: 2,217 (Japan)  6,567 (UK),
20 2,852 (US), 3,920 (Germany)
As a result (until the Lehman Shock),
 Continued Positive Credit Growth by Japanese banks (no severe credit
crunch)
 Relatively stable interbank market => low 3monthTIBOR/FB spread
(about 0.5%), but higher dollar-denominated rates for foreign affiliates
 Mild increase in corporate bond spreads (0.4% => 0.8%) due to
strong financial positions of non-financial firms and ample liquidity
Increase in cross-border M&A
 High Capital Adequacy Ratio (as of September 2008)
Mizuho (11.5%), Mitsubishi-UFJ (10.7%), Mitsui-Sumitomo (12.5%)
21
Growing Issues
 Sharp Stock Price Drop (withdrawals by investment trusts and
foreign investors, declined corporate profits due to sluggish growth)
Gov. action: abolition of naked short selling, change in the current value
accounting, extension of low capital gain and dividend taxes, capital injection
scheme, and purchase of banks’ stocks by Banks Shareholdings Purchase Corp.)
 Tightening of banks’ lending behavior (especially against SMEs)
Increase in the number of bankruptcy (construction, real estate)
Reflecting declining profits (after high growth period of 2002-07)
(Gov. action: reduced policy rates, increased credit guarantees and policy loans)
 Yen’s Appreciation (25%, rewinding of yen carry trade and global
demand for yen as a safe currency)
 Declining Export Growth
Japan’s trade deficits in August, October and November 2008
22
Stock Price Index (2000 M1=100)
※Foreigner’s Share before Sep. 08: Korea (30%), Japan (about 30%),
Taiwan (32%), Thailand (31%), Indonesia (21%)
Source: Prepared based on CEIC.
23
Movements of Exchange Rates
2007 M1=100
Appreciation
Source: Prepared based on CEIC.
24
Shares of Exports to US and EU(% Total Exports)
Japan
20%
Korea
12%
China
19%
US Market
EU Market
25
Japan
15%
Korea
15%
China
20%
Japan: Decomposition of Real GDP Growth
26
Part 3. Chances and Challenges for
Japan and East Asia
Chances and Challenges
Faced By Japan and East Asia
(1)Japan and Asia needs to develop a greater internal market for final goods
 Promoting more self-complete trade integration through an increase in
domestic demand
(2) Japan and Asia need to circulate money within Asia:
 Heavy dependence on US dollar and US (and EU) risk-taking money
※Need to develop international financial centers in Asia
※Japanese banks should increase cross-border banking activities
(3) Japan should more actively engage in cross-border and domestic M&A
 Large reserves, good balance sheets, low global stock prices, withdrawal of
M&A by foreign investment funds and foreign firms)
(4) Japan and Asia need to develop risk-free liquid assets (alternative to US
treasury bills)
 Promoting the use of JGBs abroad as reserve assets
 Greater efforts to develop Asian bond markets (e.g., currency basket)
28
Challenge 1: More Independent Intra-Regional Trade in Asia
Asia (56%)
EU (62%)
Intermediate
Products (60%)
Intermediate
Products (50%)
Final Products
(31%)
Final Products
(45%)
29
Source: METI, White Paper 2007.
Growing East Asia’s Intra-Regional Trade
70%
EU
62%
60%
50%
Asia
56%
40%
30%
20%
EU25
East Asia
10%
0%
30
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Source: IMF, Direction of Trade Database.
Challenge 2:
Need to
Expand IFCs
in Asia
31
Japan’s Current Status in Asia
32
Challenge 3: Relatively Limited Outward FDI (¥100 Millions)
5,000
0
2002
2003
2004
2005
2006
2007
2008
-5,000
-10,000
-15,000
-20,000
※Minus indicates net outflows
-25,000
-30,000
33
Source: MOF.
3,000
Outward FDI Stock ($ Billions, 2005)
2,500
2,000
1,500
1,000
500
0
France
34
Germany
Italy
Japan
Korea
Spain
United
Kingdom
United States
Source: OECD.
Challenge 4: Need to Increase Demand for Debt
Securities Held by Non-residents (%)
2006
35
Source: ADB
The Size of Bond Markets in East Asia
36
Source: ADB

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