Japan's banking: The darkest hour before dawn: The future is in the hands of MoF

Ohara, Yukiko

The current crisis in the financial system can only be solved quickly, and relatively easily, if the Ministry of Finance (MoF) acknowledged the need for injecting public funds into the system. MoF, however, also needs a political consensus on the issue. Any alternative, which relies heavily or exclusively on the strong banks, will be vehemently opposed by the healthy faction of the financial system. Any delay in solving the crisis through public funds will lead to a more expensive solution, with more casualties. A crisis feeling, therefore, seems to have developed recognizing that the status quo is untenable. As such, change, good or bad, is inevitable, and the next year will present the system with a very critical challenge, that may well prove to be the last opportunity for positive action. Again, positive action can only mean the use of public funds alongside private funds. The deflationary pressure on the economy continues to cause complications in resolving the banking crisis. Therefore, reversing deflation quickly is essential to helping the financial system deal with its problems. There are signs that the authorities are starting to act in the right direction, although the scope, size and timeliness of intervention remains to be seen.

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Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 127
Published Here
February 9, 2011