Japanese banks stable for now but risks rising, says BOJ

Tokyo

JAPANESE banks are given a relatively clean bill of health - for now - by the Bank of Japan (BOJ) in its latest Financial System Report (FSR) published on Friday. But the report highlights the potential risks that banks face from having large holdings of government bonds at a time when interest rates appear likely to start rising.

The central bank also cautions that banks could face greater "credit risk" as their loan exposure to a recovering Japanese economy increases - and that their growing volumes of foreign currency lending might create problems in the event of foreign currency funding drying up.

For now, Japan's financial system has been maintaining stability, says the report, which focuses mainly on banks in a financial system which BOJ officials say is still "dominated …