Pedestrians walk past a signboard of a branch bank of Mitsubishi UFJ Financial Group in Tokyo on Nov. 14, 2011.KIM KYUNG-HOON
From the FT's Lex blog
Last week the world's most indebted government sold a bond. The maturity date -- March 2051 -- was almost impossibly distant, and the coupon -- 2.2 per cent -- impossibly small. Yet the auction was almost four times oversubscribed, the best result in a year.
Monday's first-half results from Japan's three megabanks showed why the Debt Management Office in Kasumigaseki is one of the least stressed institutions on earth.
MUFG, SMFG and Mizuho are awash in deposits with nowhere to put them. Neither companies nor households show much of an interest in borrowing. October's slight year-on-year increase in total loans outstanding was the first in 23 months; bank loan officers continue to report that most requests for funds are precautionary, to provide liquidity on hand, rather than to invest in anything lasting.
In that context, showing up at a ¥400-billion ($5.2-billion), 40-year government bond auction is just business as usual for a Japanese lender. How else to bridge that gap between loans (a combined ¥204,390-billion at the megabanks at the end of September) and deposits of ¥300,225-billion?
Turning banks into fixed-income fund managers is not disastrous for profitability. Net gains on bond sales during the period at SMFG's banking division, for example, were ¥124-billion, more than a fifth of group operating profit. Yet these vast government bond holdings bind public and private sector into a cycle of mutual dependency.
Long-term interest rates are low because banks, holding 44 per cent of outstanding JGBs, are keeping them low. And they are keeping them low because they lack alternatives. It is certainly no cause for celebration that MUFG, the nation's biggest bank, is now lending more to the government (¥47,269-billion) than it is to Japanese companies (¥43,081-billion). Eight years on from the last big round of restructuring, the state now owns mere slivers of banks' equity. But it has a grip on them, all the same.