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A Financial System Perspective on Japan's Experience in the Late 1980s

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Author Info
Masazumi Hattori (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: masazumi.hattori@boj.or.jp))
Hyun Song Shin (Professor, Princeton University (E-mail: hsshin@ princeton.edu))
Wataru Takahashi (Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: wataru.takahashi@boj.or.jp))
Abstract

This paper revisits the events of the 1980s bubble in Japan in light of the lessons learned from the subprime crisis in the United States. Our focus is on the role played by sectoral developments in the financial system in Japan. We highlight the transformation of a subset of non-financial firms (the large manufacturing firms) from being net debtors to the banks to becoming net creditors to the banks, thereby becoming part of the financial intermediary sector. In this way, large manufacturing firms in Japan played the role of surrogate wholesale banks that increased the overall supply of credit to the economy. When good borrowers already had credit and yet loose monetary conditions encouraged greater credit supply, credit availability to marginal borrowers and to real estate-related sectors increased. We discuss the role of market conditions and monetary policy in this development.

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Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 09-E-19.

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Date of creation: Aug 2009
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Handle: RePEc:ime:imedps:09-e-19

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Related research
Keywords: Balance sheet; Commitment; Credit supply; Financial liberalization; Financial system perspective; Japan; Subprime crisis;

Find related papers by JEL classification:
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Tobias Adrian & Hyun Song Shin, 2008. "Financial intermediaries, financial stability, and monetary policy," Staff Reports 346, Federal Reserve Bank of New York. [Downloadable!]
  2. Okina, Kunio & Shirakawa, Masaaki & Shiratsuka, Shigenori, 2001. "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons: Background Paper," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 395-450, February. [Downloadable!]
  3. Guillermo Ortiz & Chair, 2003. "Whither monetary and financial stability : the implications of evolving policy regimes," Proceedings, Federal Reserve Bank of Kansas City, pages 225-240. [Downloadable!]
  4. Takeo Hoshi & David S. Scharfstein & Kenneth J. Singleton, 1993. "Japanese Corporate Investment and Bank of Japan Guidance of Commercial Bank Lending," NBER Chapters, in: Japanese Monetary Policy, pages 63-94 National Bureau of Economic Research, Inc. [Downloadable!]
  5. Claudio Borio & William R. White, 2003. "Whither monetary and financial stability : the implications of evolving policy regimes," Proceedings, Federal Reserve Bank of Kansas City, pages 131-211. [Downloadable!]
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This page was last updated on 2009-11-25.

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