TOKYO: Officials from Japan’s Financial Services Agency, Finance Ministry and central bank agreed Friday to continue closely monitoring the European market, signaling their cooperation in the face of the market turmoil wrought by Brexit. This was the first meeting between the three agencies since June 25, just after final confirmation that the British had voted to leave the European Union. The officials likely discussed the financial environment in Europe, though details from the meeting have not been made public.
Market watchers have focused over the last several days on the possibility of a state intervention in Italy’s Banca Monte dei Paschi di Siena. Anti-EU sentiment could explode in Italy if union regulations keep the Italian government from assisting the failing bank. Back in Japan, the FSA is keeping a close eye on interbank trading. There seems to be limited exchanges between Japanese and Italian banks. But “Japanese banks could be trading with European and U.S. giants that have ties to the struggling Italian bank,” an official at the financial watchdog said.
The worst-case scenario would be a repeat of the 2008 financial crisis. Banks around the world quickly grew suspicious that trading partners were hiding piles of bad debt, which dried up short-term interbank lending and added to the chaos. The FSA urged Japanese banks to build up cash reserves ahead of the Brexit vote, helping them weather the first fallout of the referendum without major damage. But the situation has taken an unexpected turn this week, with fund managers freezing withdrawals from British property funds. The Japanese government and the Bank of Japan are expected to stay on their toes for a while.