BOJ warns of potential financial system risks triggered by pandemic

TOKYO (Reuters) – The coronavirus pandemic, if prolonged, could trigger a negative feedback loop in which a worsening economy threatens to destabilize Japan’s financial system, the Bank of Japan warned on Tuesday.

Japanese financial institutions have increased risky lending, including lending to overseas energy firms, in search of higher yields amid years of ultra-low interest rates, the BOJ said in a semi-annual report analyzing Japan’s banking system.

Such exposure to various risks is among factors the BOJ must take into account in scrutinizing Japan’s financial system, the report said.

“We expect Japan’s financial system to remain sound but must be vigilant to developments,” the central bank said.

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