Current state of the Japanese economy and financial system  The Japanese economy has been recovering since the latter half of last year, driven by a virtuous cycle in which an increase in exports leads to a pickup in production and corporate profits, which in turn raises capital spending. Recently, the household sector has also been recovering in line with the improvement in employment.
The pay-offs may look enticing but compounded risk exposures are created in the process which often cannot be unwound without significant loss. BIS central bankers’ speeches  3  •  Credit underwriting standards need to be kept high. This ensures that credit is allocated based solely on the merits of the prospective economic activity and the counterparty’s ability to pay.