Although it is now almost a year since the first warning signs about sub-prime the full truth and extent of the damage to the banking industry has yet to be revealed. All that is known is that the total losses are in the region of $500 billion with some $300 billion still unaccounted for.
Rumour has it that it is the Japanese banks who will suffer the greatest loss and we will have confirmation at the end of March when the Japanese banks will have to publish their figures under the country’s new strict audit regulations. No more hiding and trying to save face. Evidence that all is not rosy with the Japanese banking system has come from the fact that the banks are already tightening as shares in Mizuho Financial, Mitsubishi UFJ and Sumitomo Mitsui have been punished hard in the Nikkei 17% tumble since Christmas. It feels like the lull before the storm.
Other areas of concern in Japan include a drop in machine orders in both November and December last year and January housing starts fell to the lowest in 40 years. A mirror image of what has been happening in the US and, for the world’s second largest economy, deeply worrying. Intra Asia trade was supposed to help cushion Japan from such effects but it seems all the world’s economies are much more intertwined and co-dependent than was originally thought.
Against such a gloomy picture this week’s interest rate decision and monthly report by the BOJ should make interesting reading, especially if there are hints that interest rates will need to be cut. Given they currently stand at 0.5% we can only assume it going to be back to zero!