BOJ: Ukraine war’s impact on Japan’s financial system limited

TOKYO (Jiji Press) — The impact of Russia’s ongoing invasion of Ukraine on Japan’s financial system is “likely to be limited at this point,” the Bank of Japan said in a semiannual report on Thursday.

“However, there is high uncertainty over future developments, and attention should be paid to the possibility that the impact on the financial system will become larger,” the central bank added, stressing the need for financial institutions to monitor the moves of financial markets and loan recipients.

In the Financial System Report, the BOJ noted that Japanese financial institutions’ outstanding amount of Russia-related claims only makes up 0.3% of their total cross-border claims. Their holdings of Russia-related bonds and equities are also limited, and the Russian branches of Japanese banks are facing no major cash-flow problems, it added.

“Nevertheless, there is substantial uncertainty going forward, and attention should be paid to the potential negative impact of sanctions [on Russia], rising resource and energy prices, and disruptions to supply chains on borrower firms’ profits,” the BOJ said.

If the Ukraine situation causes a deterioration of overseas economies or a sudden correction in international financial markets, “the spillover effects on Japan’s financial system could be significant,” the central bank warned.