JAPAN’S CONTAGION RISK

EUROPE DEBT CRISIS POSES GRAVE RISK TO JAPAN, SAYS FURUKAWA

Mitsuro Obe

The Australian, November 25, 2011

The Japanese government today said it is prepared for any contingencies that may result from the widening sovereign debt crisis in Europe, and is in lockstep with the Bank of Japan in dealing with potential contagion risks.

"The recent spread of credit woes to Italy poses a grave risk to the Japanese economy," said economic and fiscal policy minister Motohisa Furukawa in a press conference. "The government and the Bank of Japan share strong concerns and have agreed to work closely with each other."

The statement came after the Cabinet Office yesterday disclosed that Japan's financial institutions have the most exposure to Italian sovereign debt among foreign banks after those of France and Germany.

The government and the BoJ are studying how the crisis could play out and how they should respond, according to a Cabinet Office official. "They are also exchanging information to stay ahead of the curve," the official said in an attempt to reassure financial markets about Japan's ability to handle such a crisis. The official noted that after the financial crisis that began in the US in 2008, Japan swiftly enacted economic stimulus measures with the support of massive liquidity injections from the BoJ.

The statement was adopted in a meeting of senior government and BoJ officials today to review the progress of measures to cope with the strong yen that were introduced last month.

In the meeting, Deputy BoJ Governor Hirohide Yamaguchi noted that "the crisis of confidence has reached major economies of Europe and has caused a failure in a bond auction in Germany", according to officials present at the meeting

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