The Bank of Japan flooded the system with liquidity at that time, bringing the long-term bond rate down to 1 percent. Japan had a high growth rate for so long that the underlying structural problems of banks went unnoticed. They only have to count on a given date, but without continued improvement in the Nikkei, this accounting trick may not work next year. Also, Japanese banks measure their capital in yen, but many loans are dollar-denominated. As the yen falls in value, their equity drops relative to their loans, making them more likely to fail.
Japanese banks have no external auditors, they classify their own non-performing loans.
A newly created supervising office is considered understaffed. Trust banks seem to be transferring some of their bad assets to their commercial banking division. A real 80s word, meant banks were cut out of the relationships between lenders and borrowers. Big, healthy companies like Toyota, and Honda are cheating on their fragile banks by moving into the bond market. In Japan this started in 1996, with banks moving into selling mutual funds and life and casualty companies moving into each other s businesses.