...The exposure of Japanese financial inst itutions -- including banks, insurance companies and brokers to failed Lehman Bros is well dispersed across sectors, and their scale is small relative to each institution's earnings cushion and capital. However, a few banks do hold large exposures, particularly in terms of their earnings cushions. Nevertheless, while we expect this exposure to cost Japanese financial institutions much less than their sub-prime-related exposures have already cost them, this is not to say the current, severe problems of the US financial system will not prove a problem for Japanese institutions. The deteriorating investment environmen t outside and inside Japan will develop into a greater challenge for those highly li quid Japanese financial institutions that want to invest their surplus liquidity. In addition, the reduced financial flexibility of foreign financial houses has added significant pressure to those sectors or borrowers reliant on such...

Report Type: Special Comment
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