Japan to ease accounting rules

Japan will ease controversial accounting rules that are forcing banks to write down the value of illiquid securities, the country’s finance minister said on Tuesday.

Shoichi Nakagawa said the government would follow recommendations released by the Accounting Standards Board of Japan earlier in the day. “As the financial services agency we will respect this result and conduct financial supervision accordingly,” said Mr Nakagawa, whose remit includes financial regulation.

Fair value accounting requires banks to mark most assets to market prices. In the current markets this has forced them into massive writedowns that have undermined their capital reserves.

If the government goes no further than the ASBJ’s recommendation, however, it will be seen as a defeat for bankers such as Masamoto Yashiro, chairman of Shinsei Bank, who have called for an emergency suspension of mark to market. Most securitised debt holdings would continue to be accounted for at market price even under the revised rules.

The rule changes are designed to bring Japanese accounting into line with adjustments made by the International Accounting Standards Board, which sets rules for 100 countries, including the European Union, and guidance on the topic issued by the US authorities.

Earlier this month it rushed through a rule change that will make it easier for banks to reclassify some assets, thereby avoiding taking the losses as a direct hit to profits.

Accounting rulemakers around the world have come under pressure from politicians and company executives to ease their standards during the current crisis. Last week South Korean regulators agreed a change that will allow exporters partially to offset massive losses on currency hedges against expected future gains from the sharp moves in the foreign exchange markets.

But the changes have been viewed with suspicion by many investors and have been resisted where possible by regulators.

A halt to fair value is supported by several Japanese banks, but has been one of the most controversial proposals as it echoes institutions’ refusal to admit the extent of their non-performing loans during the 1990s.

“The bottom line is that you value assets based on market prices. Otherwise Japan will repeat the same mistake that led to two dark decades of companies massaging the asset side of their balance sheets,” said Atsushi Saito, president of the Tokyo Stock Exchange.

Suspending mark to market is one of a number of measures Japan is considering to stabilise a stock market that has fallen by 47 per cent this year.