The state-run fund that bailed out Japan’s banks with taxpayer money from the end of the 1990s is now so flush with cash that it is cutting what it charges lenders to protect savers.
The Deposit Insurance Corp of Japan lowered from 8.4 basis points to 4.2 basis points what it charges banks to insure deposits and then uses as a reserve to rescue failed lenders.
The cut to the lowest rate since early 1996 reflects the recovery of Japan’s financial system, and will boost banks’ profits — though the savings probably will not spur lending, BNP Paribas SA and Keefe Bruyette & Woods Inc said.
More than two years into his term, Japanese Prime Minister Shinzo Abe is struggling to boost growth in the world’s No. 3 economy, which is still feeling the effects of the collapse of a 1980s asset bubble.
Japanese companies expect to cut capital investment in the year that started on Wednesday last week, even as Toyota Motor Corp plans to spend US$1.3 billion to build plants in China and Mexico, the Nikkei Shimbun reported last week, in a sign that Japanese cash would be used overseas rather than at home.
“Corporates are basically saying we are not convinced by this economic recovery, and we’re not willing to invest on the basis of build it and they will come,” said David Threadgold, the Tokyo-based Asian research head at Keefe Bruyette & Woods, a boutique investment bank. “A lot of people are trying to learn about the positive and the negative of the Japanese fiscal and macro experience.”
The Deposit Insurance Corp, the Japanese equivalent of the US Federal Deposit Insurance Corp, had a surplus of ￥1.69 trillion (US$14 billion) at the end of March last year, against a deficit of ￥4 trillion in 2003.
The fund provided ￥17.8 trillion to 168 failed institutions from November 1996 to March 2003 under a blanket guarantee program, in addition to more than ￥8.6 trillion in capital injections to lenders, its data showed.
The yield on long-term bonds sold by several European nations, including Germany, are now lower than Japan’s, as the European Central Bank (ECB) seeks to fend of the threat of deflation with its own quantitative-easing program.
Germany’s 10-year bunds yielded 0.19 percent on Friday, down 1 basis point for last week, having touched a record-low 0.151 percent. The yield on similar maturity Japan notes is 0.335 percent.
“Every time a central banker talks about the dangers of deflation, the next word words out of his month are likely to be Japan,” Threadgold said. “I am sure there are whole study groups in the ECB who do nothing, but try to avoid the Japanese experience of deflation.”
Operating profits for 86 lenders in the TOPIX banks index were at their highest since 2006 last year, generating ￥35.25 per share, according to data compiled by Bloomberg.
Non-performing loans at Japanese banks fell to a record low of 1.7 percent in September last year, down from a high of 8.4 percent in 2002, according to data from the Japanese Financial Services Agency compiled by Bloomberg.
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