Another banking crisis on the cards as Japan lenders get squeezed

THE propensity of bankers and others who inhabit the realms of "high finance" to repeat past mistakes exceeds that of even ordinary mortals, it often seems. Successive financial crises in Latin America, Asia and elsewhere in which bankers (using other people's money) got their fingers badly burnt through imprudent lending bears ample witness to this fact.

Japanese bankers are by no means immune from such folly and in recent decades they too have been badly burned or "squeezed" by funding crises in Asia and elsewhere. Now, they are deeper in than ever, it would appear from recent warnings by the Bank of Japan and Japan's Financial Services Agency. Allowance must be made for the fact that Japanese banks suffer from a particular disadvantage when they lend overseas. This is that relatively few borrowers wish to borrow yen which, rightly or wrongly, they regard as being a "volatile" currency. Overwhelmingly, they prefer the dollar or sometimes the euro.

Japanese banks are super-flush with yen deposits in Japan where loan demand has long been depressed (despite record low interest rates) by a stagnant economy. But since almost no one outside of Japan wants to borrow in yen, Japanese banks must procure dollars to on-lend.