Bank of Japan Deputy Governor Ryozo Himino said the country's banking sector remains sound and has sufficient buffers to weather any strain caused by a future rise in interest rates.
The least favourable condition for domestic financial institutions would be for Japan's ultra-low interest rates to continue for too long against the background of a weak economy, Himino said in an interview with Reuters on Wednesday.
An expert on financial regulation and banking affairs, Himino is seen playing a key role in ensuring any exit from ultra-loose policy does not destabilise Japan's banking system that is already strained by decades of ultra-low rates.
Below are key quotes on Japan's financial system and risks:
JAPAN'S BANKING SYSTEM
"The number of bankruptcy cases remained low since the outbreak of the pandemic but has now returned to pre-COVID levels. That's something we need to look at carefully.
"When looking at financial institutions' fiscal 2022 earnings, their credit costs are very stable at low levels. Companies have ample liquidity overall. I don't think Japan will see a huge increase in credit cost that could destabilise the financial system."
ON WHETHER BOJ WILL AVOID SURPRISES IN SHIFTING POLICY
"It's desirable for the BOJ to avoid giving a surprise as much as possible since its policy affects the economy, households and companies.
"But many things happen in the world, some of which are predictable but others unexpected. It's a balance between the need to avoid a surprise and responding flexibly to ongoing developments."
ON WHETHER LENDERS CAN COPE WITH HIGHER INTEREST RATES
"When interest rates begin to rise, financial institutions may see their latent losses on long-term government bond holdings increase during the transition, but this will be manageable. They'll find it much easier to come up with workable business models than if interest rates were to stay low."
ON RISK OF STAGFLATION
"I'm not worried about the risk of Japan sliding into stagflation. If any risk should arise, the BOJ will do its utmost to prevent this from happening."
