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Determinants of the Japan premium: actions speak louder than words

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  • Joe Peek
  • Eric S. Rosengren

Abstract

Since August 1995, Japanese banks have had to pay a premium on Eurodollar and Euroyen interbank loans relative to their U.S. and U.K. competitors. This so-called \"Japan premium\" provides a market indicator of investor anxiety about the ability of Japanese banks to repay loans. We examine the determinants of the Japan premium and find that events indicating concrete actions by the Japanese government reduced the Japan premium. We find that the failure of Yamaichi Securities, which was characterized by large undisclosed losses, contributed to increases in the Japan premium, while the failure of Hokkaido Takushoku did not.

Suggested Citation

  • Joe Peek & Eric S. Rosengren, 1998. "Determinants of the Japan premium: actions speak louder than words," Working Papers 98-9, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:98-9
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    More about this item

    Keywords

    Banks and banking; International; Banks and banking - Japan; Bank loans;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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