Japan Financial Crisis Case Study
a) U.S sub-prime financial crisis on Japan
Impact on Capital Markets
Due to the eruption of the sub-prime financial crisis, Japanese banks were greatly affected by the capital losses from their equity shareholdings in the Capital Markets as stock prices declined sharply. Japanese banks tried reducing the amount of cross-holdings of shares on banks' balance sheets; however, they were still exposed to the volatility caused by equity shareholdings.
On December 2008, the Japanese government passed a law which allowed capital injections. On March 2009, three regional banks obtained capital by applying to the authorities.
In the summer of 2007, Japanese stock prices had hit a recent peak; however, it began a gradual but substantial decline through the fall of 2008 due
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The 2008 financial crisis allowed the Japanese financial institutions to seize an opportunity to shine, this is evident where Mitsubishi UFJ Financial Group Inc, Japan’s biggest bank, decided buying a a 20% stake in Morgan Stanley, which was desperately in need of cash at that time. Nomura Holdings Inc., Japan’s biggest brokerage had an even bigger ambition. It took over Lehman’s operations in Asia and Europe, in an attempt to join the group of top global investment banks.
The profits of banking were greatly affected by these capital losses and due to the worsening credit quality of bank borrowers. This is shown by megabanks such as Sumitomo Mitsui, Mizuho, and Mitsubishi UFJ, whom in their financial year of 2008, ending March 2009; showed net losses in their financial statements on a combined group basis. Their Nonperforming loan ratios remained below 2% and their Capital to Risk (Weighted) Assets ratio exceeding 10%, however there could be a serious possibility where they could deal with a shortage of
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