SMM

On the first trading day after the Labour Day holiday, Japanese bank stocks suffered a sharp fall unfortunately.
The reason behind this is the recent resurgence of the banking crisis in the United States, which has sent a chill down the spine of investors from as far away as Japan.
Due to the holiday, the Japanese stock market was closed from Wednesday to Friday last week. However, in early trading this Monday, Japan's TSE bank stock sub-index was once down 1.2%, while the broader TSE index was almost unchanged. The reason behind this lies in the recent resurgence of the US banking crisis. As Japanese banks hold huge amounts of US treasury bonds, Japanese bank stocks have been seen as the most vulnerable to US banking turmoil in Asia. In March this year, Japanese bank stocks suffered the most in the Asian markets during the sell-off triggered by the collapse of Silicon Valley Bank. Japan's TSE Bank Index plunged 17% in two weeks in March, compared to the previous year.
Unfortunately, however, Japanese bank stocks took a noticeable hit on the first trading day after the holiday.
The reason behind this is the recent resurgence of the banking crisis in the United States, which has sent a chill down the spine of investors from as far away as Japan.
First day after the holiday hit
Due to the holiday, the Japanese stock market was closed from Wednesday to Friday last week. However, in early trading this Monday, Japan's TSE bank stock sub-index was once down 1.2%, while the broader TSE index was almost unchanged.
The reason behind this lies in the recent resurgence of the US banking crisis.
As Japanese banks hold huge amounts of US treasury bonds, Japanese bank stocks have been seen as the most vulnerable to US banking turmoil in Asia.
In March this year, Japanese bank stocks suffered the most in the Asian markets during the sell-off triggered by the collapse of Silicon Valley Bank. Japan's TSE Bank Index plunged 17% in two weeks in March, before slowly rebounding as the US banking crisis temporarily eased.
And last week, as First Republic Bank declared bankruptcy, market fears of a spreading banking crisis in the US region resurfaced, causing the US KBW Bank Index to fall a cumulative 7.4% - which became the culprit for this Monday's plunge in Japanese bank stocks.
The main trigger was high interest rates, according to Michael Makdad, senior analyst at Morningstar. He also thought the weakest link in Asia was Japanese banks, including Japanese regional banks and other unlisted banks.
The weakest Japanese bank stocks?
Since March, analysts have been saying that they see a limited risk of contagion in Asia's banking sector as a whole due to the existence of capital buffers and a looser financial environment in Asia than in the US.
However, years of massive easing by the Bank of Japan have depressed bond yields within Japan and Japanese banks have bought large amounts of US Treasuries over the previous two years. This means that at a time when the Fed is tightening its policy, these banks will be at risk of large losses on their bond books.
The Japanese Financial Services Authority has also urged banks to check their readiness to deal with the risks posed by social media opinion and online banking following the collapse of several US banks.
However, given the BOJ's deposit base and strong balance sheet, Japanese officials have recently been downplaying the risk of an incident similar to that of the bank.
The Bank of Japan said in April this year that despite the stresses in the US and Europe, Japanese banks had reduced interest rate risk and the financial system remained sound.