Banks During the Pandemic: A Japanese Perspective

In recent years, Japanese banks have revived their leading international role in the provision of global liquidity. Since the start of the pandemic of Covid-19, Japanese banks have increased their overseas lending at a much higher pace. This paper looks at the activities of Japanese banks, and the drivers behind such a surge by considering factors that characterize the domestic economy. It is argued that uncertainties associated with Covid-19, and government response by means of introducing numerous unconventional measures to counter adverse effects of the pandemic, have increased cash hoarding in the economy. Japanese banks have seen a surge in the deposits held, as well as a decline in loans. Data from the Senior Loan Officer Opinion Survey on Bank Lending Practices at Large Japanese Banks, reveals that the demand for loans from all size firms and households has declined since mid-2020. Faced with ongoing razor-thin margins and prolonged low interest rates at home, Japanese banks have continued their overseas activities in a search for yield; and they have increased their exposure to offshore financial centres which could have potential domestic financial stability implications.

This is an Accepted Manuscript of an article published by Taylor & Francis in Journal of Economic Issues on 18/07/2022, available at: http://www.tandfonline.com/10.1080/00213624.2022.2055942.