CIRJE-J-202. Miwa, Yoshiro, ""Credit Crunch"?: Details from Borrower Quarterly Financial Data about What Actually Happened in Japan during 1997-1999", August 2008.
After "the Burst of the Bubble," Japan entered a long period of
stagnation in 1990s, which observers call "the Lost Decade." This "Lost Decade" ended
with "the Financial Crisis," after which the Koizumi Cabinet aggressively pursued a
policy designed to reduce the amount of "bad loans" held by banks. Some observers
now argue that other governments should learn from Japan's successful experience in
their own fight against "the sub-prime loan" problem.
What actually occurred in Japan during the Lost Decade and after, however, is
neither well-known nor well-understood. This is particularly true of "the Financial
Crisis" period. Observers have focused on the bad loans, which could cause some big
banks to fail, and assumed that their failure would cause grave turmoil in the financial
markets. During "the Financial Crisis" the government did pour large amounts of public
funds into bank rescues, arguing that a "credit crunch" would otherwise seriously hurt
the economy. And although the government took time to enforce the policy, the
Japanese economy soon began to recover. Thus, "the Financial Crisis" period has
become a turning point both for Japan's policy toward bank regulation and for related
policy debates.
Using firm-level quarterly financial data, this paper investigates the details of
what actually occurred in firm financing behavior during 1994-2000. We focus
particularly on how seriously, when, in what way, and where a "credit crunch" affected
firm behavior. What would happen to the conventional wisdom about the Lost Decade if
the troubles in the financial institutions and the related policies during the period had no
serious effect on the real economy? Yet nowhere do we find a clear indication of any
serious "credit crunch." In particular, we find no indication of such a phenomena from
the 4th quarter of 1997 to the 1st quarter of 1999.
We use quarterly financial data on about 6,000 non-financial firms with over
\600 million in paid-in capital from Hojin Kigyo Tokei Kiho (Corporate Enterprise
Quarterly Statistics) of the Ministry of Finance. We conclude with questions to
various sides of the conventional view, including the purported success of Japanese
policy toward the Financial Crisis and bank bad-loan reduction, the debate on the causes
and consequences of the Lost Decade, and the postwar policy discipline consistently
applied to financial regulation.