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

Author

Listed:
  • 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.

Suggested Citation

  • Masazumi Hattori & Hyun Song Shin & Wataru Takahashi, 2009. "A Financial System Perspective on Japan's Experience in the Late 1980s," IMES Discussion Paper Series 09-E-19, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:09-e-19
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    File URL: http://www.imes.boj.or.jp/research/papers/english/09-E-19.pdf
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    References listed on IDEAS

    as
    1. Guillermo Ortiz & Chair, 2003. "Whither monetary and financial stability : the implications of evolving policy regimes," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 225-240.
    2. Shin, Hyun Song & Adrian, Tobias, 2008. "Financial intermediaries, financial stability and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 287-334.
    3. 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.
    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.
    5. Claudio Borio & William R. White, 2003. "Whither monetary and financial stability : the implications of evolving policy regimes," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-211.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Hyun Song Shin, 2014. "Adapting Macroprudential Policies to Global Liquidity Conditions," Central Banking, Analysis, and Economic Policies Book Series,in: Miguel Fuentes D. & Claudio E. Raddatz & Carmen M. Reinhart (ed.), Capital Mobility and Monetary Policy, edition 1, volume 18, chapter 2, pages 25-67 Central Bank of Chile.
    2. Yevgeniya Korniyenko & Elena Loukoianova, 2015. "The Impact of Unconventional Monetary Policy Measures by the Systemic Four on Global Liquidity and Monetary Conditions," IMF Working Papers 15/287, International Monetary Fund.
    3. Jhuvesh Sobrun & Philip Turner, 2015. "Bond markets and monetary policy dilemmas for the emerging markets," BIS Working Papers 508, Bank for International Settlements.
    4. Kurmaş AKDOĞAN & Burcu Deniz YILDIRIM, 2014. "Non-core Liabilities as an Indicator of Systemic Risk and a Liquidity Stress Test Application on Turkish Banking System," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 29(338), pages 39-66.
    5. W. R. Garside, 2012. "Japan’s Great Stagnation," Books, Edward Elgar Publishing, number 14624.
    6. Hyun Jeong Kim & Hyun Song Shin & Jacho Yun, 2013. "Monetary Aggregates and the Central Bank’s Financial Stability Mandate," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 69-108, January.
    7. Shigenori Shiratsuka & Wataru Takahashi & Kozo Ueda, 2009. "Financial System and Monetary Policy Implementation: Summary of the 2009 International Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan," IMES Discussion Paper Series 09-E-20, Institute for Monetary and Economic Studies, Bank of Japan.
    8. Wataru Takahashi, 2011. "The Japanese Financial Sector's Transition from High Growth to the 'Lost Decades': A Market Economy Perspective," Discussion Paper Series DP2011-29, Research Institute for Economics & Business Administration, Kobe University.
    9. Asian Development Bank (ADB), 2013. "How Do Global Liquidity Phases Manifest Themselves in Asia?," ADB Reports RPT136042-3, Asian Development Bank (ADB), revised 05 Nov 2013.
    10. Masaaki Shirakawa, 2009. "2009 International Conference "Financial System and Monetary Policy Implementation," Opening Speech Financial System and Monetary Policy Implementation: Long and Winding Evolution in the Way," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 27(1), pages 19-24, November.
    11. Hyun Song Shin & Laura Yi Zhao, 2014. "Monetary aggregates and global liquidity: evidence from individual firm data from Asia," Chapters,in: Global Shock, Risks, and Asian Financial Reform, chapter 4, pages 102-149 Edward Elgar Publishing.
    12. Shigenori Shiratsuka, 2011. "A Macroprudential Perspective in Central Banking," IMES Discussion Paper Series 11-E-03, Institute for Monetary and Economic Studies, Bank of Japan.
    13. Shigenori Shiratsuka, & Wataru Takahashi & Kozo Ueda, 2009. "2009 International Conference "Financial System and Monetary Policy Implementation" Summary," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 27(1), pages 1-18, November.
    14. Kyuil Chung & Jong-Eun Lee & Elena Loukoianova & Hail Park & Hyun Song Shin, 2015. "Global liquidity through the lens of monetary aggregates," Economic Policy, CEPR;CES;MSH, vol. 30(82), pages 231-290.
    15. Masazumi Hattori & Elod Takáts, 2015. "The role of debt securities markets," BIS Papers chapters,in: Bank for International Settlements (ed.), What do new forms of finance mean for EM central banks?, volume 83, pages 41-64 Bank for International Settlements.

    More about this item

    Keywords

    Balance sheet; Commitment; Credit supply; Financial liberalization; Financial system perspective; Japan; Subprime crisis;

    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; Micro Finance 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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