18 MAR 2011
Japan is in imminent danger of a credit-crunch with global implications unless the authorities stabilise Tokyo's stockmarket and take overwhelming action to stop the yen exploding to record levels.
By Ambrose Evans-Pritchard | The Telegraph
Akito Fukanaga from RBS warned of a "financial shock" as banks and insurers comes under strain, and investors focus on the nexus of structured products linked to the yen.
"Preventive measures on the financial front are urgently needed. Sentiment has declined severely and there are concerns over capital erosion at financial institutions. Lower stock prices and yen appreciation are on the verge of triggering a credit crunch," he said.
The yen's violent move late Wednesday to a record ¥76 against the dollar - smashing historic lines of resistance - has gone far beyond levels that automatically set off secondary effects through derivative contracts.
The Topix index has regained some ground after crashing to 782 but is still at levels that leave Japan's top three banks barely above water on $1 trillion of equity holdings. The risk is that they will curtail lending as a precaution.
The Bank of Japan has already injected ¥15 trillion (£117bn) in liquidity and pledge to boost quantitative easing to ¥40 if necessary, but even this may not be enough.
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