Japan’s Financial System
It is often argued that Japan’s financial system has the following distinctive characteristics: (i) the predominance of ‘indirect financing’, and stemming from this — (ii) ‘credit rationing’, and (iii) the existence of an artificially low interest rates policy.1 It is therefore widely accepted that the flow of capital takes place not on the open market, but at the discretion of banks and other financial intermediaries. By controlling these financial institutions the government is supposedly able to keep interest rates artificially low. According to Shinohara and Kawaguchi, the financial institutions carry out ‘credit rationing’ and have close ties with large heavy industrial companies, to whom they ‘concentrate’ their lending.2 Banks’ competition consists of trying to make long-term relationships with companies from all areas of industry, where possible making them affiliated companies of the bank. The behaviour of banks is seen as a vital background factor in companies’ competition to increase their investment in equipment, and even as the motive power behind Japan’s high growth. For example, Miyazaki argued that the attempts of giant business groups, led by banks, to cover the whole range of different industries and financial institutions, brought about an increase in monopolistic competition on commodity markets and in the financial world.3
KeywordsInterest Rate Financial Institution Mutual Financing Credit Rationing Nominal Interest Rate
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- 2.This is the ‘Yūshi Shūchū’, literally ‘lending concentration’ hypothesis. See Miyohei Shinohara, Sangyō Kōzō, Shunjūsha, 1959;Google Scholar
- Mitsuharu Itō, ‘Nijūkōzōron no Tenbō to Hansei’, in Nihon Keizai no Kiso Kōzō, ed. Hiroshi Kawaguchi, Shunjūsha, 1963; Hiroshi Kawaguchi, ‘Shōhisha Bukka Tōki to Yūshi Shūchū Kikō’, Keizai Hyōron, 1963, no. 12.Google Scholar
- 3.This is the ‘Wansetto Shugl’ hypothesis. See Yoshikazu Miyazaki, Sengo Nihon no Keizai Kikō, Shinhyoronsha, 1966, pp. 31–92.Google Scholar
- 4.See Bank of Japan, Economic Research Department, The Japanese Financial System, pp. 48–59, and Bank of Japan, Research Department, ‘Wagakuni ni okeru Kinri Danryokuka no Ayumi’, in Bank of Japan’s Chōsa Geppō, July 1977.Google Scholar