Bank of Japan Gov. Masaru Hayami said Monday that Japan’s banks are unlikely to fail right away when the state’s blanket deposit protection partially ends Sunday, but added that the banks still lack quality capital.

“Another injection of public funds (that banks have to return) will not be a lasting solution,” Hayami said in a regular news conference. “But I believe there may occur a situation in which this will be necessary as an emergency measure — it’s over when a bank fails.”

Japanese banks with overseas operations have enough capital to meet international regulations, he said. “But it’s the banks’ core capital I’m worried about.”

Newly arising bad debts at the nation’s banks continue to eat away at their capital, prompting Hayami to say recently that an injection of public funds by the end of the month was desirable.

The BOJ upgraded its assessment of the economy for the first time in 20 months last week but warned that it would take considerable time for domestic demand to gain enough strength to pull the economy forward again.

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