Each spring in recent years, people have started talking about a financial crisis in Japan as the month of March draws near. In about five weeks, most Japanese firms will be closing their books for fiscal 2002, and I would like to discuss this year’s situation from several perspectives.

The first major factor to consider is the Financial Services Agency’s special inspections of banks’ assets, the results of which will have a major impact on asset revaluation. In the FSA inspection last year, 34 of the banks’ 149 struggling major corporate borrowers were put in the category “borrowers with bankruptcy risk” or even lower creditworthiness. Of the 34 firms, 26 were in four notorious sectors — construction, real estate, retail and nonbank moneylenders, and some of them have since gone bust.

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