Fallout From Mkt Turmoil Not Over Yet: Japan

Source : The Business Times, October 3, 2007

Its ministers hint at problems ahead for banks hit by US sub-prime crisis

THREE Japanese government ministers said yesterday the fallout from recent global financial market turmoil may not be over - despite surging stock prices in Tokyo and elsewhere that seem to suggest a strong return of investor confidence.

'We've been checking to see if the risk has spread and to what extent firms are exposed to securitised products related to the sub-prime market.' - Japan's Financial Services Minister Yoshimi Watanabe

Some analysts suggested the ministers could be signalling problems ahead for Japanese banks hit by the US sub-prime mortgage crisis.

So far Japan's biggest bank - Mitsubishi-UFJ Financial Group - has said sub-prime-related investments could threaten its profit this year. It has estimated its exposure to such investments at 280 billion yen (S$3.6 billion).

More Japanese banks and other financial institutions are expected to reveal exposure to sub-prime-related products when they publish their half-term results soon.

Some US investment banks have already revealed major financial losses after financial market turmoil resulted in the value of many sophisticated financial products being marked down dramatically when they became virtually untradeable.

On Monday, Europe's biggest bank - UBS - became the first of the world's largest lenders to post a quarterly loss of US$3.4 billion on write-downs of mortgage-backed securities.

Japan's Financial Services Minister Yoshimi Watanabe yesterday sounded what some analysts took to be a warning to markets, as the Nikkei 225 stock average soared more than 200 points to top the 17,000 mark.

'We've been checking to see if the risk has spread and to what extent firms are exposed to securitised products related to the sub-prime market,' he said. 'If we do find any problem we plan to deal with it quickly.'

Finance Minister Fukushiro Nukaga, meanwhile, said: 'Even though financial markets have regained some composure, we would like to carefully monitor them and the economic situation.'

Economics Minister Hiroko Ota warned that it will take a while for the sub-prime problems to affect the real US economy, including consumption and corporate finance. 'We have to see whether the US economy achieves a soft landing,' Ms Ota said, sounding an unusually cautious note.

Japanese investors, meanwhile, appear to have begun rebuilding carry-trade transactions in which they speculate in foreign currencies and securities - those denominated in Australian and New Zealand dollars especially - to take advantage of higher yields than they can obtain on yen instruments. This is despite warnings by various authorities that such 'one-way bets' could result in huge losses.