BOJ Minutes Show Difficulty of Predicting Lehman Collapse

July 17, 2018

Tokyo- The minutes of the Bank of Japan's policy meetings in January-June 2008 showed Tuesday that the bank's policymakers had difficulty reading signs of the impending collapse of U.S. investment bank Lehman Brothers.

At the meeting in June, when the world was faced with financial uneasiness stemming from the U.S. subprime loan problem, then BOJ Governor Masaaki Shirakawa said, "The worst, or a crisis of a major bank collapsing suddenly, is perhaps behind," according to the minutes.

The remark shows that the BOJ chief of the time was unable to predict Lehman's failure that occurred three months later and triggered an unprecedented global financial crisis.

Following U.S. financial giant JP Morgan & Chase Co.'s rescue takeover of ailing U.S. brokerage house Bear Stearns in March in that year, concerns over a possible financial crisis once looked to have receded.

At the BOJ meeting in early April, Seiji Nakamura, then member of the Japanese central bank's Policy Board, said, "The market confusion has come to a lull," the minutes showed.

"Excessive pessimism is being corrected," Miyako Suda, another BOJ policymaker, said at the Policy Board's meeting in late April. The minutes showed that concerns over the possibility of higher crude oil prices leading to inflation overwhelmed worries about a possible financial crisis during BOJ policy discussions.

At the June meeting, Shirakawa said he thought a collapse of a major financial institution could be avoided, according to the minutes.

In response to this view, Atsushi Mizuno, then a member of the Policy Board, said, "We'd better not easily say the worst is behind." Tadao Noda, also a member of the board at the time, said, "No one knows whether the biggest risk of 'sudden death' is really gone."

The minutes suggested that some BOJ policymakers did feel uneasy about the future but were unable to foresee the imminent collapse of Lehman and thus failed to have concrete discussions about measures to be taken to prepare for a possible financial crisis. Jiji Press