September 18, 2013

Japanese banks, which should know a thing or two about banking crises, have once again clawed their way to the top of the heap of overseas lenders. And with their knack for impeccable timing, they’ve once again become the largest force in emerging market economies – just as financial turmoil there is coming to a boil.

The Bank of Japan, under the new religion of Abenomics, has embarked on a dizzying money-printing and bond buying program to devalue the yen (partially accomplished) and to get banks to sell their hoards of JGBs to the BOJ and then lend the proceeds to Japanese businesses so that they’d invest in productive assets so that the economy could start producing more and pick up momentum. However, with businesses in no mood to invest at home, there is little demand for loans in Japan.

There is demand overseas, however. Japanese banks are falling all over each other to lend to these businesses, including Japanese companies that are offshoring production. Focal point: emerging markets, where cross-border lending in the first quarter reached its highest level on record, according to the Bank for International Settlements’ Quarterly Review, released on Sunday. Largest recipient countries: China, Brazil, and Russia.

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