Op-Ed Contributors

Financial Japan still stable

By Xiao Gang (China Daily)
Updated: 2011-04-06 08:03

Basically, Japanese enterprises are still in a quite stable financial position, and have strong capabilities to continue developing and innovating across many areas. Most notably, Japan is widely known as a player in new technologies in energy conservation as well as environmental protection. Therefore, the rebuilding phase in Japan emphasizes a "green recovery", and the reconstructed infrastructure should be more advanced, smart and energy-saving.

In terms of Japan's supply chain risks across the globe, many Japanese plants remain closed. But this will be a short-term disruption lasting weeks or months (because of the power cuts and bottlenecks in railway and port systems) rather than a permanent damage to production facilities. It will be mitigated by a gradual resumption in operations. Also, many Japanese firms have redundancies in their supply chains, so they can switch production to other facilities and compensate for the closures.

The Japanese banking industry, still recovering from the global financial crisis, will see reduced profits after the triple disaster if it makes more loan impairments. Nonetheless, it remains healthy and stable.

Unlike many Asian countries and regions, Japanese banks have not seen excessive lending resulting from stimulus measures adopted during the depths of the global financial crisis, and instead have steadily lowered their loan-to-deposit ratios.

Also, according to the Bank of International Settlements, Japanese banks' consolidated external claims reached $2,710 billion at the end of last September. In other words, they are well positioned to sell foreign assets to raise cash if necessary. Given that the international banking sector has little exposure to Japanese banks, it is likely that the negative impact on the international banking system will be limited.

Traditionally, many market analysts have a poor record of analyzing the economic and financial impacts of shock events or disasters, leading to overreactions in equity and foreign exchange markets. This time is no exception. With Japanese stock markets having tumbled to very low valuations, there are undoubtedly buying opportunities for value-seeking investors.