Word: japanize
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...Japan discovered the futility of ultra-low interest rates in the 1990s, when the Bank of Japan (BOJ) tried to prod the country out of a protracted recession by lowering the rate all the way to zero in 1999 - where it stayed, with one brief interlude, until 2006. Despite the fact that lenders could essentially get free money from the government, Japanese banks were busy recapitalizing and paring down mountains of bad assets, and had little interest in doling out more loans in a moribund economy. The zero-rate policy did little to stimulate growth...
News that Japan's three biggest financial institutions - which have all recently invested in foreign financial institutions - were considering selling new shares to shore up their [working capital] triggered the decline. The move would dilute banks' earnings per-share, compounding investor worry that the appreciation of the yen will further reduce share value and corporate profits. Mitsubishi UFJ, like Japan's other mega-banks, avoided damage caused by the subprime crisis, but its stock portfolio is now taking a hit as the Nikkei and Tokyo Stock Price Index (Topix) continue to fall and wipe value from its balance sheet...
...Equity market declines are having a negative impact on the capital adequacy ratio of major banks," says Shinichi Ina, bank analyst at Credit Suisse Japan. "It will get worse in the short term because the other sectors are in severe situations, making it difficult for banks as lending amounts shrink and credit costs increase." But the new offerings have their risk. Large public shareholdings made banks vulnerable to market fluctuations during Japan's lost decade - after the real-estate and banking bubble burst in the 1990s - and the government intervened to buy shares to prevent further bank losses...
...Japan's banks have worked to reduce their shareholdings, but economists and bank analysts have mixed views on just how much exposure banks now have to stock price movement. Hironari Nozaki, a bank analyst at Nikko Citigroup, says that mega-banks should be stable even if the Topix plummets to 600 or the Nikkei 5,500. (they closed Monday at 746 and 7,162 respectively). "But," he says, "I don't want to imagine that situation...
...Monday, Prime Minister Taro Aso called for a drafting of emergency measures, such as purchasing stocks held by banks, limiting the short selling of stocks and increasing the amount of taxpayer money to be injected into banks from 2 trillion yen to 10 trillion yen - all reminiscent of Japan's 1990s meltdown. The government action appears to be focused on preempting losses caused by share prices. Declared Aso, "Stock prices greatly influence the real economy...