Morgan Stanley's Sato Suggests BOJ Governorship Could Go Vacant for a While

In an October 27, 2007 piece, Takehiro Sato of Morgan Stanley Tokyo raised the possibility that the Bank of Japan governorship could go vacant for a period as, a) the FY2009 budge would pass regardless of deliberations in the Upper House within 30 days of a passage in the Lower House in February, b) a butting of heads between the ruling LDP and the DPJ could cause a chaotic round of Diet business after March, whereas the BOJ governor and deputy governor post expire on March 19 and their replacements will need to be approved by both Houses, giving the DPJ, who now controls the Upper House, the ability to veto any LDP candidates.

This raises the prospect that the April and May monetary policy meetings would be held without a sitting Governor or Deputy Governor, leaving Miyako Suda, the longest-serving non-secretariat member, as the stand-in.

While this bizarre situation could cause some consternation among BOJ watchers, it would basically be a tempest in a tea cup, as the BOJ hasn't been doing anything for the past year or so anyway. Weakening Japanese economic activity and a continued slowing of the US economy could continue to put the BOJ on hold for the foreseeable future anyway.

However, this would disappoint those traders who continue to hope that a rate hike would put some juice into the bank stocks.

http://www.morganstanley.com/views/gef/index.html#anchor5731

FSA: Let The Regional Banks Fail

Regulators at Japan's Financial Service Agency are getting fed up with the slow progress in restructuring at regional banks. Some are suggesting that the government should let the weaker ones fail and then invoke the JPY10 milion cap on government deposit insurance.

Former FSA chief Heizo Takenaka took a stick to the major banks, pushing them to take care of bad debts (NPLs) and holding management accountable. But he and his predecessors were softer on the regionals due to political considerations for regional economies, which has effectively given many of the weaker regionals a pass. Indeed, bank management at the regionals seem to believe the government will rescue them if push comes to shove.

However, "emergency measures" under the Deposit Insurance Law were intended for systemic crises, not saving smaller institutions.

Besides, some of the regionals continue to make dicey loans, such as the loans extended to Credia, a consumer finance company that was delisted from the TSE on Monday. Gifu Bank (8528), Shizuoka Chuo Bank and Towa Bank's (8558) have exposure to Credia. Shimizu Bank (8364) posted a notice on its Web site that the bank will no longer make additional loans guaranteed by Credia. Credia had similar arrangements with about 80 entities, including Momiji Bank, Kansai Urban Banking Corp. (8545) and Hokuriku Bank. In total, Credia guaranteed consumer loans totaling 50 billion yen.

In addition, the new Financial Instruments and Exchange Law has prompted more than 80% of financial institutions to change how they market investment trusts, and regional banks are reducing their sales targets for investment trusts because it now takes twice as long as before to deal with customers in explaining the nature of the investment trust and "getting to know" the clients investment needs.

Finally, privatization of the new Yucho Bank could dramatically change the competitive landscape for the regionals. Japan Post has already sold more investment trusts than many major banks in the past two years since it entered the business.