THE maelstrom that hit global financial markets a decade ago is known in Japan as the Lehman Shock, after the bankruptcy of the American investment bank that caused it. Japanese banks themselves escaped relatively unscathed, owing to defences built during the 1990s, when the country struggled with deflation and excessive debt. But they seem to have forgotten the lesson. Risk-taking is back.
Squeezed at home by razor-thin margins and negative interest rates, both major and regional banks have been on a spree abroad. Banks have more than doubled borrowing and lending in dollars since 2007. Dollar-denominated assets of Japanese banks topped $ 3.5trn at the end of 2016, according to the Bank for International Settlements (BIS) in Basel. That leaves them vulnerable to currency swings and external shocks, it warns.
