Development Bank of Japan
Research Report
No. 32Behavior Trends of Japanese Banks toward the
Corporate Sector and Their Impact on the Economy

October 2002

Economic and Industrial Research Department
Development Bank of Japan

Contents

Summary ............................................................................................................................................... iii
Introduction ............................................................................................................................................1
I

Financing Trends of Japanese Firms............................................................................................6
1. Macro-trends .............................................................................................................................6
2. Inter-industry Credit Shifts .......................................................................................................9
3. Relationship to Economic Growth..........................................................................................12II

Financing and Loan Environment of Japanese Banks..............................................................14
1. Loan and Share Holding Trends of Japanese Banks...............................................................14
2. Defaulting Firms and Main Banks ..........................................................................................17
3. The Disposition of Non-performing Loans.............................................................................18
4. The New Basel Capital Accord .............................................................................................19
5. Prospects .................................................................................................................................22

Appended Tables ..................................................................................................................................25
References .............................................................................................................................................27

Development Bank of Japan Research Report/ No. 32iBehavior Trends of Japanese Banks toward the Corporate Sector and
Their Impact on the Economy
Summary
1. In the last decade, the growth rate of theJapanese economy was low, despite two economic recoveries, and policies for easing the financial situation have not provided an impetus
for growth. This has partly been due to problems
with financing for firms and the intermediaryfunctions of financial institutions. This paper
analyzes the procurement of external funds in thecorporate sector through financial transactions byfocusing on inter-industry fund allocation andinvestment and loan trends among Japanese financial institutions.
2. One-third of external funds in the Japanese
corporate sector come from private-sector financial institutions in the form of borrowing andequity, while those in the U.S. are derived
mainly from the capital markets. Therefore, theJapanese corporate sector is more sensitive to the
behavior of financial institutions. Since the late1970s, essentially all changes in funds have been
consistently in borrowing; the contribution of thecapital market, although it increased temporarily
during the economic recovery of the late 1980s,
has been limited. In the most recent economic
recovery, the corporate sector showed a decline
in funds, in other words a surplus of funds, forthe first time.
By industry, there was strong demand forfunds mainly in the manufacturing, service andwholesale industries in the 1980s. In the 1990s,
however, other than a constant increase in transportation and communications through 1998,
demand for funds generally switched from anincreasing to decreasing trend. Measurement
indices show that the amount of inter-industry
credit shifts, which indicates the vigor of changes
in fund allocation between industries, wassignificantly lower in the 1990s than the 1980s,
suggesting that the supply of funds to industries
with high growth potential may have been restricted.

3. On the fund supply side, almost 60% of all
financing by Japanese banks consisted of loans
and equity holdings to the corporate sector.
Based on the near market value, considerable
changes in financing in recent years were affected by the write-off of credited loans andshare price fluctuations throughout the 1990s. In
particular, each year since FY1996 showed a decline of financing with the exception of FY1999,
when equity values rose. Looking at the fundsupply by industry, changes in total borrowings,
which are centered mainly on non-manufacturingindustries, have been declining continuously
since FY1998, while those in equity have been
dominated by the share prices of manufacturingindustries, which account for 60% of equity
holdings.
4. The relationship between fund-raising in thecorporate sector and the economic growth rate
indicates that larger inter-industry credit shifts
lead to an increase in total funds and consequently to higher economic growth. Moreover,the effect of the shifts persists for a considerable
time. The decline in the efficiency of inter-industry fund allocation is thus one cause of
the slow growth of recent years. The inter-industry credit shifts—including the disappearance of credited loans and fluctuations in themarket value of equity holdings—also indicate
stagnation in the supply of funds by Japanesebanks in the 1990s. The amounts of shifts in
FY2000, however, were significantly higher. It isconjectured that the decline in specific industries
is substantially reflected in the disposal of equity
cross-holdings and the write-off of non-performing loans by Japanese banks.
5. In order to elucidate the relationship between the decline of inter-industry credit shifts
and Japanese bank behavior, transitions in totalloans by banks to listed firms subsequently culminating in a need for financial assistance or le-

Development Bank of Japan Research Report/ No. 32iiigal liquidation proceedings − defined as “default” in both cases−were observed. The shareof the so-called “main banks” in the borrowing
outstanding of those firms increased as the timeof default approached, and grew rapidly in
FY1997. Dependence on the main banks forfunding increased just as screening of loan recipients became stricter due to the financial crisis
that began at the end of 1997, the commencement of the self-assessment system, and the introduction of early corrective measures in
FY1998. As a result, the burden of supporting
individual firms became concentrated in specificbanks, which were thus compelled to focus
resources on managing existing non-performing
loans. This led to inflexible reallocation of theirfunds and so reduced activity in inter-industry
credit shifts.
6. The new Basel Capital Accord, currently
under examination, addresses the standard formore elaborate credit risk management. Eachbank must maintain minimum capital requirements for an appropriate level of losses calcu

lated based on that standard. Japanese banks,
burdened by non-performing loans and equity
valuation losses, are facing difficult times andare being forced to deal with individual loans
more strictly. They are also expected to take theinitiative in reducing management risk, whileremaining sensitive to the correlation of returnand risk from their asset components.
7. It is therefore important to raise the efficiency of financial intermediation in order to satisfy the demand for funds in industries that havethe potential to drive growth, which is linked to
the growth of the economy overall. It is also essential to improve the financial intermediarysystem, while noting that comprehensive risk
control by Japanese banks is a major priority.
Tasks ahead are to enhance the credibility of securities markets, encourage the disclosure andaccumulation of practical information for investors, and promote the formation of reasonabletrading in the markets for each security or liquidated loans.
[Akimitsu Fujii (e-mail: akfujii@dbj.go.jp)]

iv

Development Bank of Japan Research Report/ No. 32

Introduction
The Japanese economy experienced a low
growth rate during the 1990s, and more recently,
monetary easing measures have been taken aggressively. The lending practices of the banking
sector, which should be mainly responsible for
implementing the financial policies as financial
intermediation, have not functioned adequately. 1
This study examines corporate financing asa cause of the low economic growth rate during
the 1990s. It also looks at the intermediary function of financial institutions, especially banks,2and their role in hindering the spread of financial
policies. Specifically, it sheds light on the conditions of corporate financing based on the assumption of industrial dynamism indicated in
Figure 1. Growth is stimulated by the active supply of funds to the relatively few industries thathave growth potential. A growth model is assumed in which the demand for funds expands as
those industries grow, which then spreads tosurrounding industries and results in macroeconomic growth. It appears that changes in the allocation of funds ground to a halt in the Japanese

economy in the 1990s and funds supplied were
not sufficient relative to the capacity for growth.
This study also attempts to verify the hypothesis that inter-industry credit shifts declinedin the 1990s and caused the low growth rate during that period, whereas Japanese banks had been
expected to play the primary role in efficiently
allocating funds to Japanese firms. The study
also discusses the mechanism of the prolonged
decline of the shifts, or the inefficient allocationof funds.
The study is organized as follows. Chapter I
examines the financing trends of Japanese corporations, first in aggregate and then by industry,and estimates the relationship between the vigor
of inter-industry credit shifts and economic
growth based on long-term time-series data.
Chapter II surveys share-holding and loan trends
in the banking sector and discusses the pricevariability of share holdings as well as theso-called “main banks” against a background offunding inflexibility in the 1990s. Finally, thefuture prospects are outlined, taking into accounttrends in international regulations.

1

In the “Box”, the conditions of financial policy penetration are reviewed from the perspective of the money stock.
2
With regard to the transition of financial easing policies,
the investment stimulation effect of lowering interest rates
has been the most important traditionally (money channel).
Nevertheless, there are empirical analyses showing that thechanges in the lending behavior of Japanese banks have also
had a significant effect (credit channel). The analysis by
Ueda (1993) and the panel analysis by Hoshi, et al. (1993)
are among the forerunners; however, among examples since
the exacerbation of the non-performing loan problem inJapan, Morshink and Bayoumi (1999) pointed out thatchanges in total loan exposure have an effect on economic
growth. Also, Miyagawa, Nosaka and Hashimoto (1995)
stated that the decline in the ability of Japanese banks tobear the burden of risk associated with the surge in
non-performing loans during the first half of the 1990s hindered capital spending by small- and medium-sized companies. Ogawa and Kitasaka (2000) stated that, in addition to
the effect of the drop in land prices during the 1990s, theabove-mentioned changes restrained capital spending, especially by small- and medium-sized companies andnon-manufacturing industries. Ogawa (2001) also pointed
out much the same with the addition of inventory investment. In addition, the study by Saida and Sekine (2000) is
an empirical analysis that sheds light on fund allocation andindustries in a similar manner to this study.
Development Bank of Japan Research Report/ No. 32

1Growth model(1) Money demand backed by strong growth of a few industries
Shift of funds from degenerating andlow-growth industries(2) Expanded and sustained growth of high-growth industries
Expanded demand for funds(3) Spread to other industries = macroeconomic growth

Japanese economy in the 1990s
Decline in the credit shift function
Gradual changes in the allocation offunds by the banking sector

a. Increased burden of supporting major clients
experiencing business stagnation
b. Restrained lending in order to maintain capital ratioc. Volatility in the price of policy share holdings
Inactivity in the shift of funds to high-growth industries
Decline in the speed of financial policy
permeation

Low growth

Figure 1 Industry Dynamism and the Japanese Economy in the 1990s

2

Development Bank of Japan Research Report/ No. 32

BOX: Money Stock under Financial Easing
Policies
Table 1 lists the financial policies announced by the Bank of Japan. Monetary easing
policies began with the cut in the official discount rate in July 1991, more than ten years ago.
In July 1995, a target rate was specified assuming that the uncollateralized overnight call ratewould “remain somewhat below” the prime rate,

and the rate has remained at historically low levels ever since. Furthermore, in March 2001 theBOJ undertook quantitative easing measures andfunds have since been aggressively supplied toshort-term financial markets by changing thetarget rate to the current account balance of theBOJ. The monetary easing was intended to increase the money stock with credit expansion incapital markets or in commercial banks.

Table 1 Major Changes in Financial Policies
Implementation date
8/30/90
7/1/91
11/14
12/30
4/1/927/27
2/4/93
9/21
4/14/95
7/7/95
9/8/95
9/9/98
2/12/99
8/11/00
2/13/01

3/1
3/19

8/14
9/18

12/19

2/28/02

Official
discount rate
(%)
6.00
5.50
5.00
4.50
3.75
3.25
2.50
1.75
1.00

Induction
rate (%)

Changes in methodology of providing liquidity

1.00 - α
0.50
0.25
0.15
0.25
0.35

025

*
*
*

Introduction of Lombard-type lending facility
Full-scale short-term government bond buy-up operations
Announcement of bill purchase operations in all branches(implemented in July)

0.15
BOJ current account Monthly amount ofbalanceoutright purchase of longterm government bonds

0.10¥5 trillion¥6 trillion¥6 trillion or more

¥10-15 trillion

Examination of increase¥600 billion (Å ¥400 billion)* Temporary extension of maximum loan term for
Lombard-type lending facility: 5 Æ 10 business days (September reserve maintenanceperiod only)* Non-sterilization of foreign exchange market dollar
intervention funds¥800 billion* Examination of broadening the range of the eligible
collateral for operation: Real estate secured ABS, ABCP (acceptance as of Feb.
4)
* Utilization of CP repurchases¥1 trillion* Extended term for the application of the official discountrate to Lombard-type loan interest: 5 Æ all business days (March loading period only)* Examination of expanding operation targets (loans to
Deposit Insurance Corporation of Japan and government
special account for tax allocations)Greater money stock than the ¥10-15 trillion target by the end of the fiscal year

Source: Bank of Japan “Monthly Policy Committee Report” and “Financial and Economic Statistics Monthly”

Development Bank of Japan Research Report/ No. 32

3

(factor)(compared to the previous year)
35%

24

30%

22

25%

20

20%

18

15%

16

10%

14

5%

12

0%

10

-5%
-10%

8
96

97

98

99

00

(quarterly amount)
01
02

01/4

(monthly)
02/3

Currency in circulation

BOJ current account balance

Monetary baseCredit multiplier (liquidity in the broad sense, right-hand scale)

6

Credit multiplier (M2 + CD, right-hand scale)Figure 2 Monetary Base and Credit MultiplierNotes: 1. The bar graph of currency in circulation and the BOJ current account balance express contribution to
an increase in the monetary base.
2. The monetary base growth rate and contribution of each item are based on a comparison of averagebalance during the term with the same term of the previous year.
3. Credit multiplier = money stock/monetary base. Money stock = M2 + CD or liquidity in the broad
sense. The values are seasonally adjusted.
Source: Bank of Japan Research and Statistics Bureau “Financial and Economic Statistics Monthly”

Figure 2 looks at monetary easing policies
since 1996 based on trends in the monetary base,or the sum of currency in circulation, and the
BOJ’s current account balance. The monetarybase has been expanding, reflecting active
monetary easing policies in recent years.3
Through raising the target level of the balancesince the autumn of 2001, in particular, the paceof expansion has been accelerating. On the other
hand, if the money stock is considered to be M2+ CDs (certificates of deposit) mainly in the deposits of commercial banks, the speed of growth
is relatively slow. Consequently, the long-term
decline of the credit multiplier, which is derived
by dividing the money stock by the monetarybase, persists. Generally, if the credit multiplieris stable, financial adjustment by the central bankis capable of controlling the money stock in the3

The temporary decline compared to the previous year at
the beginning of 2001 was a reactionary decline resulting
from the temporary large-volume fund supply in response to
the Y2K problem that occurred from the end of 1999
through the beginning of 2000.

4

Development Bank of Japan Research Report/ No. 32

overall market. A sustained decline in the credit
multiplier, however, means that the effective
speed of monetary easing policies is declining.4

4The credit multiplier has continued to decline since
1992, however there were also special causes for the decline
during the first half of the 1990s. According to Hachisuka
and Watanabe (1992), Chapter 2, and Adachi (1994), Chapter III, while the interest rate on investments in deposits
exceeded the interest rate on borrowings in corporate financing during the latter half of the 1980s, firms undertook
compensating transactions by investing funds procured at
low interest in deposits. Entering the 1990s, this turnabout
in interest rates disappeared and the ratio of deposits to cashin the corporate sector tended to decline due to the cancellation of corporate term deposits, thereby restraining money
supply growth. In addition, Hosono, Sugihara and Mihira(2001), Chapter 4, conducted an empirical analysis of thelong-term relationship between the credit multiplier andmoney supply. A portion of term postal deposits thatreached maturity flowed into deposits, increasing the M2 +CD growth rate somewhat since the latter half of 2000. The
decline in the credit multiplier is even more notable if themoney supply is seen as liquidity in the broad sense (i.e.,
including deposits, investment trusts and other instrumentsof financial institutions other than domestically licensed
banks).

Figure 3 analyzes the contribution ofchanges in the money stock (M2 + CD) in termsof credit. Overall, growth remains around 3 to
4%, although growth in recent years has been the
result of an increase in government bond holdings while growth overall is restrained due to thegeneral decrease in loans to the private sector. In
other words, the banking sector, which pays a

key role in making financial policies work, increased its holdings of government bonds andcontinues to avoid lending to the private sector.
The growth of money stock is therefore sluggish.
This lending stance of Japanese banks appears to
be related to the speed of permeation of financial
policies.

(compared to the previous year)
10%(quarterly)

8%(monthly)

6%
4%
2%
0%
-2%
-4%
-6%
-8%
96

97

98

Foreign assets
Corporate bonds and shares

99

00

01

Government bonds
Others

02

01/4

02/3

Loans to the private sector
Total

Figure 3 Analysis of Contribution of the Money Stock (M2 + CD) in Terms of Credit
The money stock growth rate and contribution of each item are based on the balance at the end of
the term compared to the previous year.
Source: BOJ “Financial and Economic Statistics Monthly”
Note:

Development Bank of Japan Research Report/ No. 32

5nancial institutions, the 30% for borrowings and
3% for shares combined account for one-third.
Meanwhile, among U.S. corporations, procurement through bonds (14%) and from capital
markets (54%) account for approximately 70%.
Comparing the two, the financing of Japanesefirms is more highly leveraged on average andmust be more sensitive to the behavior of financial institutions than that of US firms.6
Based on Figure 1-1, an analysis of thechanges in financing of Japanese firms since1977 by dividing the period according to thebusiness cycle reveals the following characteristics. First of all, borrowings consistently accountfor virtually all of the changes overall. Next,
although financing from capital markets
increased during the period of economic expansion following the first quarter of 1987 (corresponding to the Heisei boom), the scope ofchange tended to decline thereafter. Consequently, capital markets have not shown any significant contribution since the end of the Heisei
boom from the view of corporate financing.
Thirdly, bills and accounts payable, which correspond to trade credits, had a strong correlation

I Financing Trends of Japanese
Firms
1.

Macro-trends

This study classifies corporate financing into two
types, “internal funds” (= profit after taxes –profit distribution + depreciation + changes inreserves), in which profit and other internal funds
are considered to be sources of funding, and“external funds” (= changes in borrowings +changes in bonds + changes in capital + changes
in trade credit), which are actually procured fromfinancial institutions or capital markets. Externalfunds are the focus of this analysis, and the procurement of external funds is referred to below
simply as “financing”.5
Table 1-1 shows the total exposure of Japanese and U.S. corporate financing in the
non-financial sector as of the end of 2001.
Among Japanese firms, liabilities are 70%, withborrowings and bonds accounting for almost
50% and trade credits and other liabilities accounting for the other 20%. In addition, from theperspective of financing from private-sector fi-

Table 1-1 Corporate Financial Liabilities and Capital Balance (end 2001)

Borrowings(from private-sector financial institutions)
Bonds
trade credits
Other liabilities
Shares and other equities(held by private-sector financial institutions)
Total

Japan
AmountRatio (%)(¥ tril.)
431
39
(329)
(30)
85
8
171
15
77
7
341
31
(29)
(3)
1,104
100

U.S.
AmountRatio (%)($ tril.)
2.1
10
2.9
1.2
3.0
10.9

14
6
15
54

20.1

100

Notes: 1. Japan: private nonfinancial corporations, U.S.: nonfarm nonfinancial corporate business.
2. The amount of share holdings in private-sector financial institutions is estimated by using “Share Ownership
Survey” of the National Conference of Stock Exchanges. The amount of the nonfinancial industry share heldby financial institutions is estimated using the holding ratios of financial institutions.
Source: BOJ “Flow of Funds Accounts (preliminary report)”, FRB “Flow of Funds Accounts of the United States”
6
5

Actually, a portion of the financing through equity financing is incorporated in capital reserves; however, since it
is not possible to distinguish between capital reserves andprofit reserves in corporate statistics, only capital is dealt
with here for the sake of convenience.

6

Development Bank of Japan Research Report/ No. 32

According Adachi (1994), Chapter IV, since the capitalratio rose during the period of expansion in the latter half ofthe 1980s due to the activation of equity finance, especiallyamong manufacturing industries, corporate financing, withthe exception of real estate and other industries, remained
generally sound until 1993, subsequent to the collapse of the
bubble economy.

(compared to the previous year: ¥ tril.)
1,000
bills and accounts payableborrowings
bonds
capital

800
600
400
200
0
-200

77Ⅱ〜 78Ⅰ〜 80Ⅱ〜 83Ⅱ〜 85Ⅲ〜 87Ⅰ〜 91Ⅱ〜 94Ⅰ〜 97Ⅲ〜 99Ⅱ〜 01Ⅰ〜
77Ⅳ
80Ⅰ
83Ⅰ
85Ⅱ
86Ⅳ
91Ⅰ
93Ⅳ
97Ⅱ
99Ⅰ
00Ⅳ
01Ⅳ

Figure 1-1 Transitions in Financing
Notes: 1. Total change for all types and sizes of industry by business cycle, each period of the expansion (encircled) or the slowdown and recession.
2. Borrowings are defined as the sum total of long-term and short-term borrowings from financial institutions and discounted bills receivable.
3. Revisions of discontinuity as a result of changes in the number of samples for each fiscal year were carried out for each industry (manufacturing: 18, non-manufacturing: 17) based on the methodologies of
the Institute for Social Engineering (1976), with capital classified into three groups: ¥10 – 100 million,¥100 million – 1.0 billion and ¥1 billion or more. However, if zero exposure was included in the datarequired for the revision of discontinuity, that data was excluded from the revision. In addition, since
the amount of corporate bonds issued by firms with capital of ¥10 – 100 million was so small, it caused
considerable fluctuation in specimen restoration and was therefore set uniformly to zero.
4. The privatization of Nippon Telephone and Telegram and Japan Railways was adjusted individuallyusing the Securities Reports of each company.
Source: Ministry of Finance “Quarterly Report of Corporate Statistics and Securities Reports”

with sales and, after the second quarter of 1983,
indicated a change consistent with the businesscycle − increasing during periods of economic
expansion or recovery and decreasing in times ofslowdown or recession. Finally, since the third
quarter of 1997, overall financing started to
decline. From the second quarter of 1999 throughthe fourth quarter of 2000, in particular, financing declined in spite of the economic recovery
and thus there are now funding surpluses in thecorporate sector overall.
The tendency of funding surpluses and thedecline in borrowing in the corporate sector fromFY1997 suggests that demand for funding by
7
corporations was stagnant. Still, factors specificto financial institutions may also have influenced
7

Refer to Ando (2001), Chapter 3, for an analysis focusing
on the repayment obligation of companies as an issue on thefund demand side.

the decline in borrowing.
For example, Figure 1-2 indicates the mostrecent conditions regarding cash flow as perceived by companies and the corporate demand
for funds as perceived by banks. This indicatesthat cash flow DI worsened by 7 percentage
points from the second quarter of FY2000 until
most recently, whereas corporate fund demand
DI from the perspective of banks declined 24
percentage points from the third quarter of
FY2000 until most recently. Thus, the perceptions of the fund demand side and supply sidediffer and, if the corporate cash flow deteriorates,
there is not a simple relationship in terms of supply and demand balance perceived by banks withthe demand for funds. In addition, Figure 1-3
compares the perception of companies toward
the lending attitude of financial institutions andthe perception of banks toward loan management

Development Bank of Japan Research Report/ No. 32

7

(DI：%)
1050Cash flow DI (Quarterly Short-term Economic Survey)-5

Fund demand DI (Opinion Survey on Bank Lending)

-10
-15
-20
-25
-30
00/Ⅰ

00/Ⅱ

00/Ⅲ

00/Ⅳ

01/Ⅰ

01/Ⅱ

01/Ⅲ

01/Ⅳ

02/Ⅰ

Figure 1-2 Corporate Cash Flow and Fund Demand from the Perspective of Banks
Notes:

1. Cash flow DI is expressed as the ratio of companies over the range of “tough” to “easy” (symbols
are the inverse of the usual)
2. Fund demand DI is indicated by classifying the ratio of banks for each response as “increase” +“some increase” × 0.5 – “decrease” – “some decrease” × 0.5.
3. The quarterly segments are March, June, September and December for cash flow DI and April,
July, October and January for fund demand DI, with a gap of about a half month between them.

Source: Cash flow DI:

Bank of Japan Research and Statistics Bureau “Quarterly Short-term Economic
Survey”
Fund demand DI: Bank of Japan Financial Market Bureau “Senior Loan Officer Opinion Survey on
Bank Lending Practices at Large Japanese Banks”(DI：%)

25
20
15
Loan management DI (Opinion Survey on Bank Lending)

10

Lending attitude DI (Quarterly Short-term Economic Survey)

5
0
-5
00/Ⅰ

00/Ⅱ

00/Ⅲ

00/Ⅳ

01/Ⅰ

01/Ⅱ

01/Ⅲ

01/Ⅳ

02/Ⅰ

Figure 1-3 Lending Attitude and Degree of Eagerness
1. Lending attitude DI is expressed as the ratio of companies over the range of “lenient” to “demanding.”
2. Loan management DI is indicated by classifying the bank ratio for each response as “eager” + “somewhat eager” × 0.5 – “cautious” – “cautious” – “somewhat cautious” × 0.5. Arithmetic averages for large,
mainstay and small/medium-sized companies for the past 3 months
3. The quarterly segments are March, June, September and December for cash flow and April, July, October and January for fund demand, with a gap of about a half month between them.
Source: Lending attitude DI: Bank of Japan Research and Statistics Bureau “Quarterly Short-term Economic Survey”
Loan management: Bank of Japan Financial Market Bureau “Senior Loan Officer Opinion Survey on
Bank Lending Practices at Large Japanese Banks”

Notes:

8

Development Bank of Japan Research Report/ No. 32

using the same survey. It shows the perceptions
have coincided since the third quarter of 2000,
since when banks have become more cautious
toward lending over time. In other words, asbanks became more cautious, they perceived thatthe demand for funds was declining. The two
diagrams thus suggest that, in addition to the roleof corporate fund demand in the decline in financing, the lending attitude of banks was also
involved.8
2.

Inter-industry Credit Shifts

This section and later sections pursue moredetailed aspects of financing behavior by industry.
Figure 1-4 shows the transition in financing
of firms with capital of ¥10 million or more,which in principle are subject to complete countsurveys, from among corporate statistical data.
The contribution of manufacturing industries was
generally the greatest until FY1985, followed bywholesale, electrical energy and other industries.
However, real estate and services ranked top
from the latter half of the 1980s until FY1990.
At the beginning of FY1990, when thebusiness environment was beginning to slow,
the increased vigor of the real estate andconstruction industries remained prominent
until FY1993, as adjustments in wholesaleand other industries were initiated. In addition, transportation and telecommunications
continued to expand firmly throughout the
1990s. From the latter half of the 1990s until
most recently, however, almost all of the industries have generally decreased financing.

(compared to the previous year: ¥ tril.)
160
Electricity and others
Services
Transportation & Telecommunications
Real estate & Construction
Wholesale & Retail
Manufacturing industries

120
80
40
0
-40

77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01(fiscal year)

Figure 1-4 Changes in Financing by Industry
Notes: 1. The figure is for firms with capital of ¥10 million or more.
2. Borrowings are the sum total of short-term and long-term borrowings from financial institutions and discounted bills receivable.
3. Revisions of discontinuity as a result of changes in the number of samples for each fiscal year were carried out for each industry (manufacturing: 18, non-manufacturing: 17) based on the methodologies of theInstitute for Social Engineering (1976), with capital classified into three groups in the same manner as
Figure 1-1. However, if zero exposure was included in the data required for the revision of discontinuity,
the revision was carried out with the exclusion of that data.
4. The privatizations of NTT and JR were adjusted individually using the Securities Reports of each company.
5. The calendar year is used for 2001.
Source: Ministry of Finance “Quarterly Report of Corporate Statistics and Securities Reports” and Securities Reportsof NTT and JRs.

8

The Senior Loan Officer Opinion Survey on Bank
Lending Practices at Large Japanese Banks was first released in April 2000. Since bias unique to questionnaire
surveys is apparent, quantitative surveys require the accumulation of data over a fixed term. The 50 banks covered bythis survey account for about 75% of total lending.
Development Bank of Japan Research Report/ No. 32

9(compared to the previous year: ¥ tril.)50
OthersPetroleumTransportation machinery
Electrical machinery
Iron & steel
Chemicals

40
30
20
10
0
-10
-20

77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01(fiscal year)

Figure 1-5 Changes in Financing by Industry (Manufacturing Industries)
Note:
Same as Figure 1-4.
Source: Ministry of Finance “Quarterly Report of Corporate Statistics and Securities Reports”

Figure 1-5 categorizes the major industries
from among the manufacturing industries of
Figure 1-4. The stockpiling of petroleum reserves and refinery-related capital spending at
the end of the 1970s, Video Tape Recorder production and semiconductor-related investments
in electrical machinery during the first half of the
1980s, and the increased production of automobiles seen in transportation machinery in the late1980s possibly reflect the course of robust company growth in Japan from the aspect of financing.9 Those industries were the driving force of
the Japanese economy during these periods.
With regard to the conditions of financing,
the transitions in σˆ t , as given by the equation
below as an index indicating the vigor of inter-industry credit shifts, is examined next. σˆ t is
the standard deviation of Δm it weight-averagedby the share of industry and ∆mit is the growthrate of mit, the amount of financing of industry i
at time t, compared to the same term in the previous year.10 ΔM t is the growth rate against the9

The Japan Development Bank (1991) is referred to primarily with regard to investment in plant and equipment.
10This is an index of sectoral shifts in employment introduced by Lilien (1982). In this study, total exposure compared to the same quarter of the previous year is used; thus,changes occurring within the quarter are not reflected andthe impact of short-term changes within the year is lessened.
In addition, there is also the shortcoming of over-estimationof σˆ t if there is broadening deviation between the fundsupply change rate of each industry and the fund supply
10

Development Bank of Japan Research Report/ No. 32

same term in the previous year of the financingof all industries at time t.
1

 35 mit
2(∆mit − ∆M t ) 2 σˆ t =  i =1 M t∑

A larger value of σˆ t means that there arelarge disparities between industries in the rate ofchange in financing. Therefore, there will be a
sharp increase, or a reaction to such increase, infund demand reflecting the expansion of facilities or sales increases resulting from technological innovation or deregulation in specific industries. Consequently dynamic fund allocation willcontribute to higher economic growth.

change rate of the overall economy over the long term.
In addition, Davis (1987) pointed out that there areproblems when observing reallocation in the medium- tolong-term since σˆ t in the equation above includes theeffect of changes in reactions. However, with regard to financing, Davis surmised that the reallocation of required
funding, including temporary fund demand, should be possible.
Furthermore, if the value of the total fund change rate
∆mt is large, σˆ t may also be large. However, when an
estimate was made using share instead of the fund change
rate, the difference between the latter half of the 1980s andthe period of FY1990-93 decreased, although σˆ t tended
to be low after FY1994 (refer to Appended Table 1).

(δ)
0.13
0.11
0.09
0.07
0.05
0.03
77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01(fiscal year)

Figure 1-6 Vigor of Inter-industry Credit Shifts
Note: Estimated based on the data of Figure 1-4 (capital of one billion yen or more, 35 industries, quarterly of thecorporate statistics)

Figure 1-6 plots the financing conditions of
Figures. 1-4 and 1-5 with measurement and transitions of σˆ t . After rising from the first half ofthe 1980s and remaining at about 0.1 until theearly 1990s, σˆ t began to decline, and remained
around a low of 0.05 from the mid-1990s. This
parallels the trends in the Japanese economy thatwere favorable until the 1980s. In addition, thepeak was in FY1987-88, about two years earlier
than the changes in financing of Figure 1-3.
In corporate financing after FY1987, however, funds were procured through large-volume
equity finance, while financial management ofspecified monetary trusts, fund trusts, and otherfinancial products aggressively expanded. Com-

panies sometimes have both fixed deposits,
which had come to pay higher interest rates due
to financial deregulation, and funds procured on
the market through commercial paper or other
instruments. There may also have been excessivebank loans to leasing companies, which wereinvolved in real estate and non-bank operations.
Taking these into account, the fact that σˆ t in
1987-89 sometimes exceeded its value at thetime of the oil shock reflects the excessive
financing during the bubble economy. Note thatthe level of σˆ t during the 1990s was low.
These characteristics are discussed in detail in
the next section in terms of their causal relationship with the economic growth rate and financ-

Table 1-2 Industries with Large Changes in Financing
Rank 77Ⅱ-77Ⅳ 78Ⅰ-80Ⅰ 80Ⅱ-83Ⅰ 83Ⅱ-85Ⅱ 85Ⅲ-86Ⅳ 87Ⅰ-91Ⅰ 91Ⅱ-93Ⅳ 94Ⅰ-97Ⅱ 97Ⅲ-99Ⅰ 99Ⅱ-00Ⅳ
1Electricity

Petroleum

Officeservices

2

Marinetransportation

Electricity

Petroleum

3

Wholesale Iron & steel

4

Petroleum

Other
manufacturing

5

Cement, ceramics& glass

Wholesale Iron & steel

Officeservices

Officeservices

Petroleum Real estate Real estate Construction

Nonferrous Electrical
Petroleummetal
machinery
Electricity

Other
services

Officeservices

Other
services

Wholesale

Cinema &entertainment

01Ⅰ-01Ⅳ

Othertransportation &telecommunications

Officeservices

Other
services

Officeservices

Other
services

Precisionmachinery

Officeservices

Real estate

Officeservices

Petroleum

Wholesale Broadcasting

Wholesale Iron & steel Real estate Wholesale

Other
Nonferrous Precision
Electricity transportation & Electricity
metalmachinery
telecommunications

Other
transportation &telecommunications

Real estate

RetailMiningOthertransportation &telecommunications

Other
services

Notes: 1. The data of Figure 1-4 is categorized by business cycle. The top five ranking industries in terms of degree ofcontribution to σ̂ t in each period are listed.
2. Shaded periods indicate periods of economic slowdown or recession; shaded items indicate manufacturingindustries.
Source: Ministry of Finance “Quarterly Report of Corporate Statistics and Securities Reports”

Development Bank of Japan Research Report/ No. 32

11ing growth rate.
Based on Table 1-2, industries having alarge contribution to σˆ t are surveyed together
with the business cycle. Since the 1980s, officeservices constantly contributed significantly toσˆ t . While petroleum, steel and other material-type manufacturing industries and the energy
sector were prominent until the first half of the
1980s, real estate, wholesale and other transportation and telecommunications ranked near the
top from the latter half of the 1980s. Recently,
precision machinery, with a surge in capitalspending for semiconductor production in thelatter half of the 1990s, and broadcasting, inwhich equity finance plays a major role due torecent listings on stock markets, have beenprominent.

3.

Relationship to Economic GrowthWith regard to the relationship betweenchanges in corporate financing and economic
growth, the causality between the vigor of inter-industry credit shifts σˆ t and the actual
economic growth rate is examined. The Vector
Autoregressive model (VAR) is estimated simply,
and Granger causality tests are run. To gain an
overview of the conditions of financing otherthan the vigor of credit shifts, the growth rate
∆Mt of total corporate financing is included in
the model as a variable.11 The results of thebivariate Granger causality tests with two of
three variables are indicated in Table 1-3. As
indicated in Figure 1-7, causality was obtainedby which, when inter-industry credit shifts areactivated, they spread to growth in total financing and thereafter the economic growth rate increases.

Explained variables

Table 1-3 Results of Bivariate Granger Causality Tests

GDP∆M
log σˆ

Explanatory variables
log σˆ
GDP∆M**
7.28**
10.27(0.002) (0.009)
0.59
7.78**(0.446)(0.007)3.80
0.31(0.055) (0.582)

Notes: 1. GDP is the real economic growth rate.
2. The upper value is the F value and the lower value in parentheses is
the P value. ** indicates significance at a level of 1%.
3. The estimate period is from the second quarter of 1983 through thefourth quarter of 2001.
Real economic
growth rate

Vigor of inter-industry credit shifts

T otal financing growth rate

Figure 1-7 Results of Granger Causality of Financing and Economic Growth
Note:

There is causality in the sequence of vigor of inter-industry credit shifts Æ total financing
growth rate Æ real economic growth rate
Logarithm is used for σˆ t . In addition, a lag length of
one quarter is used based on Schwartz information criteria.
1112Development Bank of Japan Research Report/ No. 32

15

Impulse response of GDP to shocks ingrowth in total financing

1296Impulse response of GDP to shocks in interindustry credit shifts

3
0
1

2

3

4

5

6

7

8

9

10 11 12 13 14 15 16 17 18 19 20(quarter)Figure 1-8 Impact of the Real GDP due to a One-unit Rise in the Index
Note:

Estimated based on the data of Figure 1-4 (capital of ¥10 million or more, 35 industries, quarterly of
the corporate statistics).

Figure 1-8 shows impulse responses obtained by VAR according to the three variables
above. It indicates the change of the real economic growth rate over time against the shock of
a one-unit rise in the variable. The reaction to therise in the growth rate of total financing is a rapid
increase, reaching a peak in four quarters andthen switching to decline. Meanwhile, with theactivation of credit shifts, the initial reaction,
while gradual, continues to have an impact in thelong term. Consequently, one factor in the prolonged sluggish growth in Japan in the 1990s
was that the intermediary function of financial
institutions for allocating funds appropriately
between industries declined. If the economic
growth rate was estimated with σˆ t reverted

from its current level around 0.05 to around 0.09,
where it had been during the first half of the
1980s, and with the other conditions constant,
the growth rate could be raised by 0.9% after one
year, 1.4% after two years, and about 1.6% after
three to five years.12 In contrast, for an equivalent effect to be achieved by increasing lending
and other total financing, ∆M, under the same
conditions, growth of about 10% would be necessary.
Since highly developed economies rarely
realize a broad increase in the total amount offinancing in the overall economy by deliberately
promoting all corporate financing, fund allocation needs to be dynamically changed on thefund supply side.13
12

Estimated when the difference between log 0.05 and log
0.09 is applied using an impulse response.
13
Although the decline in financial intermediation isstressed in this study as a factor in lowering σˆ t and reducing inter-industry credit shifts, the decline in the shockof real economy like labor reallocation can be a factor theoretically. Regarding the latter, the analysis by Fujita (1998)
indicates that the shock of labor reallocation declined in thefirst half of the 1990s, whereas Presad (1997) and Saida andSekine (2001) found no significant difference between the
1980s and 1990s.
In addition, the estimation of σˆ t in this study is limited purely to inter-industry credit shifts targeting large
firms with capital of ¥1.0 billion or more, while Saida andSekine (2001) conducted estimates including inter-scalecredit shifts with capital divided into five levels. However,
the results of Saida and Sekine were similar to those of thisstudy.
Development Bank of Japan Research Report/ No. 32

13

II Financing and Loan Environment of Japanese Banks
1.

Loan and Share Holding Trends ofJapanese BanksThis section examines asset management of thebanking sector, i.e., the fund supply side. As indicated in Table 2-1, of the ¥740 trillion in assets
under management in the domestic banking sector, loans to companies account for 50%, with
6% in the form of shares and investments. Including industrial bonds, CPs, about 60% is supplied from banks to the corporate sector.
Changes in the amount under management are
examined below based on loans and shares,
which are of higher relative importance.
Figure 2-1 shows the change in total corporate loan exposure and the market value of shareholdings of Japanese banks. Their loan exposureand unrealized profit on shares both increased in
the 1980s. As share value declined throughout

Table 2-1 Total Financial Assets of JapaneseBanks (end 2001)

Cash and deposits
Loans(corporate loans)(housing loans)(consumer credit)(government)
Corporate bonds and CPs
Government bonds and short-term
government securities
Other securities
Derivatives
OthersTotal

Amount(¥ tril.)
29
470
(372)
(73)
(10)
(15)
10
45
66
56
27
37
740

Source: Bank of Japan Research and Statistics Bureau“Flow of Funds Accounts (preliminary), Statistics
of Loans by Recipient”

the 1990s, however, they inevitably carried out
trading to make profits realized on share hold-(¥ tril.)
30
20
10
0
-10
-20
-30
-40
80

83

86

89

92

shares (from 1990 changes due to trading are excluded)

95

98

01
(fiscal year)① shares (changes due to trading)② loans (excl. loan write-offs, etc.)
write-offs of non-performing loans and other special factors① +② (1990 and later)

Figure 2-1 Changes in Total Corporate Loan Exposure andthe Market Price of Share Holdings
Notes: 1. Only the shares of listed companies are targeted.
2. Total loan exposure is based on bank account book value before deduction of individual credit loss provisions.
3. Credited loan write-offs and the value of share trading are estimated using “Flow ofFunds Accounts Statistics” of the Bank of Japan Research and Statistics Bureau.
4. The calendar year is used for 2001.
Source: Bank of Japan Research and Statistics Bureau “Financial and Economic Statistics Monthly”,
National Conference of Stock Exchanges “Share Ownership Survey”

14

Development Bank of Japan Research Report/ No. 32

Ratio
(%)
4
64
(50)
(10)
(1)
(2)
1
6
9
8
4
5
100

which excludes loan write-offs and other special
factors. Active asset management, excluding thechanges by share value volatility or the write-off
of non-performing loans, has decreased theseassets in amount since 1997.
In Figure 2-2, the changes of Figure 2-1 aredecomposed into total loan exposure and themarket price of share holdings by industry. As
the total loan exposure gradually decreased overall in the 1990s, it is evident that the main players in these changes were the service, real estate,
construction, wholesale & retail, restaurant andother non-manufacturing industries. On the other
hand, shares underwent a broad repeated decline
due primarily to the volatility of shares of manufacturing industries, which account for 60% of

ings for the purpose of offsetting the losses fromwriting off non-performing loans, thus rapidly
reducing the unrealized profit on shares. Consequently, their risk absorbers weakened and theirloan outstandings declined gradually in the 1990s.
The trading had been carried out primarily by“cross-trading”, in which share holdings arebought back immediately after selling them atalmost the same prices. The effect of a decreasein share value coupled with an increase in its
book value increases the risk of asset value volatility due to the share holdings. The act of sellingthem off to avert that risk first became conspicuous in FY1999. Meanwhile, total loan exposure since the financial crisis in FY1997 until
recently has been declining based on pure trading,(3) Total loans + market value of share holdings(1) Total loans(¥ tril.)(¥ tril.)

25
20
15
10
5
0
-5
-10
-15
-20

30

20

10

0

(¥ tril.)(2) Market value of share holdings

15

-10

10
5
0

-20

Service
Real estate & construction
Finance & insurance
Wholesale & retail, restaurant
Transportation & telecommunications
Other
Manufacturing industries

-5
-10

-30

-15
-20
-25

-40
80

83

86

89

92

95

98
01
(fiscal year)

80

83

86

89

92

95

98
01
(fiscal year)

Figure 2-2 Changes in Total Loan Exposure by Industry andMarket Value of Share Holdings
1. Only the shares for listed companies are targeted. It is assumed that there is no change in the composition of share holdings by industry during the year.
2. Loan outstanding to each industry is based on bank account book value before deduction of individual
credit loss provisions.
3. Credited loan write-offs and value of share trading are estimated using “Flow of Funds Accounts” of
the Bank of Japan Research and Statistics Bureau.
4. The calendar year is used for 2001.
Source: Bank of Japan Research and Statistics Bureau “Financial and Economic Statistics Monthly”, National Conference of Stock Exchanges “Share Ownership Survey”
Notes:Development Bank of Japan Research Report/ No. 32

15

holdings. Theoretically, risk could have been
reduced by substituting assets through market
sales of listed shares. However, the market had
little capacity to absorb large-scale inflows ofshares, and perhaps, reflecting the traditional
structure of cross-holdings, Japanese banks continued to assume high risk by maintaining theirholdings.
As a result, both manufacturing and nonmanufacturing industries contributed to the volatility in asset value of Japanese banks in the
1990s. In other words, manufacturing industries
mainly accounted for volatility in share holdings,
while non-manufacturing industries did so inloans. Consequently, the credit exposure on theassets of Japanese banks has decreased greatly inboth the manufacturing and non-manufacturingindustries through the decline in market value ofshare holdings and total loan exposure. Because
share holdings with excessive price volatility
constitute a serious business risk, reducing themagnitude of such holdings is a matter of urgency; however, from the standpoint of absorbing the risk in portfolios, bias in industry risk

might be introduced by greatly reducing only
manufacturing industries that are strongly inclined toward shares.14 Thus future portfolio
management of banks has to consider seriously
to assess whether or not to actively take credit
risk in specific industries.
Figure 2-3 shows the vigor of inter-industry
credits shifts σˆ t , calculated in the same manneras in the case of corporate statistics, using thechanges in total loan exposure and share holdings in the banking sector. While the calculation
using corporate statistics consists of quarterly
data for 35 industries, this is a somewhat rougher
calculation using annual data for 23 industries.
However, it resembles the configuration of thegraph for the period from the 1980s through the
1990s. In the most recent FY 2000, however, it isworth noting that the value of σˆ t , inter-industry
credit shifts, increased at the same time as a
sharp decrease in the combined total of total loan
exposure and share holdings. This can be seen asa sign of evolving adjustments in the industrial
structure in the form of a significant reduction in
funding to specific industries in banking sector
(%)

20

0.20

15

0.15

10
5

0.10

0

0.05

-5

0.00

-10
80

83

86

89

92

95

98

01
(fiscal year)

Vigor of credit shifts σ̂ tRate of change of total loan exposure and share holdings of Japanesebanks (right-hand scale)Figure 2-3 Changes in Total Loan Exposure and Share Holdings of Japanese Banks
Note:

Estimates of 14 manufacturing industries and 9 non-manufacturing industries in year units
using the data of Figure 2-2. The calendar year is used for 2001.

14
As indicated by Dewatripont and Tirole (1994), since a
new advance into an industry with little prior involvement
may be considered a new business risk, in some cases, depending on the bank, the diversification of industry risk may
not necessarily lead to a decline in business risk.

16

Development Bank of Japan Research Report/ No. 32

assets. Behind this has been a change in the
stance of the banking sector, exemplified by anincrease in the legal liquidation of companies
and the promotion of write-offs of credited loans
as the economy briefly recovered from FY1999
through FY2000. There were also considerable
differences in valuation by industry in the stock
market at this time.
2.

Defaulting Firms and Main Banks

The analysis so far has looked at the decline
in the function of inter-industry credit shifts
centered on the banking sector in the 1990s. Thissection discusses the causes of that decline. One
characteristic of Japanese corporate finance,
namely the intimate relationship between firms
and specific banks (the so-called “main bank”
relationship), partly explains why funds havebeen retained by firms with little potential togrow.
Here, cases in which firms depend on financial support from business banks and ultimately
fail through legal liquidation are defined as “default”. The amounts of borrowings from the mainbanks of listed companies that fell into default
since the 1990s were surveyed, total short-termand long-term borrowings were combined to givethe “total borrowings”, and the bank that provided the highest amount of this figure wasconsidered to be the main bank. The survey
covered 69 non-financial listed firms having aborrowing history of over five years reckoning
from the accounting year prior to the year of default that could be traced retroactively to specificfinancial institutions. Figure 2-4 divides thosefirms into groups by year of default and indicatestransitions in the main bank borrowing ratio of
individual firms using arithmetic mean. Total
borrowing is based on detailed borrowing statements for each financial institution that are contained in the Corporate Financial Databank of theDevelopment Bank of Japan.15
As indicated in Figure 2-4, the graph showsa generally constant expansion each year. In
other words, the main bank borrowing rate increased as the default approached. For example,
the main bank borrowing ratio of the sevencompanies that failed in FY2001 was 41% at theend of the accounting year immediately prior todefault, compared to 22% five years earlier.
Banks other than the main bank were averse tofinancing for the purposes of corporate bond redemption or refinancing of borrowings, and themain banks were eventually compelled to respond to cash flow needs. Therefore, the burden
for funding those firms frequently became concentrated in specific banks. In addition, seenfrom the perspective of the bank, not only do
operating funds become shackled, but considerable manpower must be allocated to the management of loan recipients. As a result, as Japanese banks were faced with the need to streamline their operations, they could allocate only
limited management resources to the active
evaluation of firms with latent growth potential
and provide them with funds.
The graph on the right in Figure 2-4 is a regrouping by fiscal year of the groups that defaulted since FY1998. The main bank borrowing
ratio in FY1996 - FY1997 rose rapidly from 30%
to 42% for firms defaulting in FY1998, 15% to
28% for those in FY1999, 26% to 31% for thosein FY2000, and 22% to 32% for those in FY2001.
All of these were in a range of about 10% except
for those in FY2000, as shown by the steep inclination in the graph.16 As the screening of borrowers intensified following the financial crisisand commencement of self-assessment toward
the end of FY1997, as well as the introduction ofearly corrective measures in FY1998, the burden
on specific banks is likely to have increased rapidly at this time. Subsequently, although banks
pursued turnaround of the defaulting firms bysearching for sponsors, this increased the numberof firms that, unable to endure the burden, werecompelled to choose legal liquidation.17
16

15

Not all firms that had loan exposure disclosed their loanstatements in their account settlements of FY1999. In suchcases, only major lenders that could be ascertained weretargeted using Securities Reports. In addition, firms thatreceived financial support prior to bankruptcy were considered to have defaulted in the year in which they received
support.

Refer to the Notes, Figure 2-4, for statistical implications.
17This study deals with the conditions of increased inflexibility in the provision of Japanese banks’ funding andmanagement resources to bankrupt firms as a result of themain bank relationship, focusing on defaulting firms. In
contrast, Kobayashi, Saida and Sekine (2002) recognized asignificant positive correlation in regard to the so-called
Development Bank of Japan Research Report/ No. 32

17

(loan share: %)2001 bankruptcy(7)60

2000 financial
support, bankruptcy
(20)

50

1999 financial
support, bankruptcy
(12)

40

1998 financial
support, bankruptcy
(15)

30

1997 bankruptcy(7)

20

1995-96 financial
support, bankruptcy(5)10

1992-93 bankruptcy(3)0(loan share: %)50(secular change indicated by fiscal year)

40
30
20
10
-5

-4

-3

-2
-1
(default year = 0)

93 94 95 96 97 98 99 00(fiscal year end)

Figure 2-4 Changes in Main Bank Borrowing Share
1. The targets were the 69 firms among listed firms (excluding financial) that underwent legal liquidationor posted liability exemption profit in the 1990s, and that had total borrowings that can be ascertained
continuously by financial institution over a 5-year period reckoning retroactively from the end of theaccounting year immediately prior to that point in time. The figures in parentheses in the legend represent the number of firms in each year.
2. The main bank is considered to be the bank with the maximum share of total borrowings as of the endof the accounting term immediately prior to default.
3. The constant term, dummy and T coefficient were each at a significant level (1%) when the following
least squares method estimate was implemented for defaulting firms since FY1997. This confirms that
dependence on the main bank increased as the default approached, particularly accelerating in FY1997.
∆St = 6.47 + 6.66D−1.64T+ ε t(3.70) (4.01)(2.66)
T = -4, -3, -2, -1 Adj. R2 = 0.09, D.W. = 2.03 n = 61 Figures in parentheses are t values.
∆St = changes in the main bank borrowing share (%), D: dummy (= 1: FY1997, = 0: otherwise)
Source: Development Bank of Japan “Corporate Financial Databank”, Securities Reports

Notes:

3.

The Disposition of Non-performing Loans

Based on Table 2-2, the changes in creditedloans since FY1999 (using the conditions ofself-assessment) indicate that more than 90% of
the decrease in total exposure of about ¥80 trillion that occurred over a three-year period resulted in a decrease in unclassified, or good,
credits. Behind this was a considerable deteriora“forbearance lending” between the liability ratio and loans
centered in non-manufacturing industries by estimating theloan function for firms that were continuously listed fromFY1993 to FY1999. The present study complements that of
Kobayashi, et al. with respect to the increasing inflexibilityof Japanese banks.
18

Development Bank of Japan Research Report/ No. 32

tion in the situation of borrowers in debtor categories (due to the weakening business performance of borrowers, increased severity of banks’
self-assessment) or the transformation to nonperforming loans, as well as the decrease of loan
outstanding to excellent firms.
The results of sample surveys of majorbanks in Table 2-2 have been released by the
Financial Services Agency, underscoring the deteriorating evaluation of loans. According to thisdata, 7.1% of the shifts in debtor categories during FY2000 were from “normal” to “caution required”, while 12.8% shifted from “caution required” (accounting for less than one-fourth of
the balance) to “normal”. Virtually none shiftedTable 2-2 Conditions of Loan Self
Assessments
End FY00
balance
Total
Unclassified
Classified loans(class II)(class III)(class IV)

536
471
66
(66)
(3)
(0)

Decreaseagainst end
FY97
c80
c74
c6
c2
c4
c0

(unit: ¥ tril.)
Contribution rate
100.0
92.5
7.5
3.0
4.4
0.2

The figures are for all banks. Effects of financial
institutions that have failed since FY1998 are notadjusted.
Source: FSA “Conditions of Risk-monitored Loans”
Note:

Table 2-3 Transitions in Debtor Category

NormalCaution required
Potential bankruptcy andlower

NormalCautionrequired

92.9
12.8
1.0

6.5
78.8
6.3

(%)
Potential
bankruptcy and
lower
0.6
8.4
93.7

Source: FSA (2001) “Issues in the Financial Capital Market
and Measures Addressing Them ”

to “normal” from “potentially bankrupt” or lower
categories, which accounted for an even smaller
portion of the balance. In addition, with regard toconditions since FY1998, disposal loss reached acumulative total of ¥22 trillion from mainly direct write-offs, with a net increase of ¥3.7 trillion
in total risk-monitored loans based on the disclosure standards of the Japanese Bankers Association. If the recovery rate of direct write-offs
were assumed to be 20% of the book value at the
time18, the amount disposed—even taking into
account the reversal of credit loss provisions—would be estimated to be ¥23.6 trillion,
and the amount of non-performing loans generated in terms of total risk-monitored loans to beabout ¥27 trillion. Considering these conditions
over a three-year period, in practice bankers must
spend much time for the control of credited loans
18

According to the Cabinet Office (2001), the loan principal purchase price of the Cooperative Credit Purchasing
Company averaged about 22% during the period of April
1997 to March 2001.

that become classified loans and for self-assessment tasks in line with changing standards
and more rigorous management.
4.

The New Basel Capital Accord

The new Basel Capital Accord19 requires
banks that are expanding globally to maintain acertain minimum level of capital. This standard
for capital requirements functions as an impartial
condition in international competition between
banks and encourages the soundness and securityof the international banking system.
To give a simple example, as indicated in
Figure 2-5, while accumulating provisions forthe average value of anticipated loss generated
by irrecoverable loan holdings (that is, anamount equivalent to expected losses), banks are
obligated to maintain capital to cover the maximum expected loss in the event of unforeseen
circumstances. The expected loss at that time iscalculated by multiplying the expected value ofthe default probability by a fixed loss rate given
default based on past recovery performance. In
addition, the maximum loss in many cases is the
maximum value of losses generated at a certain
or higher probability of less than 1% based on
VaR (value at risk) or other methodology.
With regard to actual standards for capitalratio in Japan, Japanese banks expanding globally were obligated to maintain a capital ratio
corresponding to a minimum of 8% of risk assets
beginning with the March 1993 term settlement
based on an international agreement in 1988.
This prompted Japanese banks, which had consistently increased loans throughout the 1970s
and 80s, to issue subordinated bonds.20 Later, achange involving incorporation of the exchange
and interest fluctuation of trading account asset
holdings as market risk was added beginningwith the March 1998 term settlement. Based on
the current standards, however, the capital ratioof major banks at the end of March 2002 is an19

Convened at the Bank of International Settlements in
Basel, Switzerland, by the G-10 countries, central bank of
Luxembourg, and regulatory authority representatives.
20
Ito and Sasaki (1998) explained that, as the result of theintroduction of the capital ratio standard in March 1993, thecapital ratio of city banks and long-term credit banks after
deduction of subordinated bonds had a significant impact onlending behavior.
Development Bank of Japan Research Report/ No. 32

19

Probability

Provisions

Capital

Expected loss

Maximum loss

Loss

Figure 2-5 Bank Capital and Credit Risk Concepts
Expected loss = default probability × (1 – recovery rate)* Default probability: calculated according to an internal rating model* Recovery rate: a constant rate based on past loan recovery performance

ticipated to be just over 10% on average21 with
about 2.4% covered by public funds.
Currently, the Basel Committee on Banking
Supervision has announced proposals for new
standards and the views of the various countries
are now being coordinated. Taking into accountthe views of each country regarding the second
Consultative Document in January 2001, the direction for revision was clarified in November
2001 and there are prospects for the announcement of the third Consultative Document before
long. Implementation as initially planned was
postponed twice and is now set for the end of
2006. While establishing internal bank supervisory systems and reinforcing disclosure of risk
and capital composition as additional pillars, theproposals also require more sophisticated risk
management when calculating the minimum
capital ratio.
In the risk management based on the newly
proposed standard, operational risk22 (such as
loss due to computer failure, misconduct, and soforth) is added and credit risk is more elaborate.
As indicated in Figure 2-6, operational risk is
considered to be equivalent to 12% (after theNovember revision) of the sum total of credit
risk and market risk. Meanwhile, the more
21
Based on Financial Services Agency(2002) “FY2001
Settlements of Major Banks”
22
According to the Basel Committee on Banking Supervision (2001a), operational risk is defined as “risk relating todirect or indirect loss resulting from inadequate or failed
internal processes, people and systems or from external
events.”20

Development Bank of Japan Research Report/ No. 32

elaborate credit risk is as indicated below.
First of all, the risk weight of loans to thenon-financial private sector, which had been auniform 100%, will change under the new standard in accordance with the default probability
and the loss rate given default of individual firms.
In addition, as indicated in Table 2-4, in order toencourage the development of more substantial
risk management systems at each bank, it would
be possible, when calculating risk weight, to reflect risk weight on the default probability onlyor, aside from default probability, on the loss rate
given default in accordance with the level of theinternal ratings approach. Figure 2-7 plots loans
to companies, housing loans to individuals, andother loans to individuals, thus illustrating therelationship of risk weight set by the authorities
and default probability when the basic approachis adopted. The slope of the November revision
is somewhat gentler than that of the first Consultative Document. However, when the bankruptcy
rate for corporate loans exceeds 1%, for example,
a risk weight of 100% or more is required.
Table 2-4 Risk Asset Calculation Method of
the Basel Consultative Document

Standardized approach
Internal ratings-based
approach

Basic method
AdvancedmethodDefault probLoss given
abilitydefault
Set by the
Set by theauthorities
authorities
Bank estimate Bank estimate

Source: Basel Committee on Banking Supervision (2001a)

B/S

Risk assets
Market risk
8%

Credit risk

* Operational risk

(currently being adjusted to 12% of)

Figure 2-6 Operational Risk(%)
to companies
to individuals (housing)to individuals (other)

400
350
300
250
200
150
100

Default probability
(%)

50
0
0 1

5

10

15

20

Figure 2-7 Credited Loan Risk-Weight by the Basel Committee on
Banking Supervision
Source: Basel Committee on Banking Supervision (2001b)

Furthermore, the correlation coefficient of
the default probability of multiple borrowers is
set at 0.1 – 0.2 for loans to companies and 0.04 –0.15 for loans to individuals. However, it is set
so that the correlation coefficient decreases as
the probability of default of individual loans increases. In other words, the probability of simultaneous default is limited as long as the company,
for example, is not a group company. Thus, as
indicated in Figure 2-8, it is possible to reducethe maximum loss of credited loans by broaden-

ing borrower diversification. Rather than concentrating loans on large borrowers, it is moreadvantageous for banks to have a large numberof smaller loans. Furthermore, promoting analysis of the correlation coefficient would stimulate
the formation of a balanced loan portfolio thatincorporates the effects of diversified borrower
types, regions, and so forth.
Although the profit margin of large corporations is generally small, they do have the potential for earning fee income from incidental op-

Development Bank of Japan Research Report/ No. 32

21

Expected loss

Maximum loss

Figure 2-8 Conceptual Diagram of Diversified Investment

erations and so forth, and credit risk is low. On
the other hand, although the credit risk for loans
to small- and medium-size firms and to individuals is high, a somewhat higher profit margin as
well as loan diversification can be anticipated. Inorder to be able to meet international standards inthe future, Japanese banks will be expected to a)assess the credit risk of borrowers and the revenues that can be obtained from them, and b) develop an optimal loan portfolio as they upgrade
the risk management of credited loans.
Though the risk weight of share holdings is
set at a maximum 1,250%, the existing long-termholdings evident in Japan and Germany remain
at the level of 100% as before.
5.

Prospects

Given the fact that Japanese banks haveshare holdings with substantial price volatility,
and that credited loans account for the majorityof assets as indicated above, there is a considerably high risk of price fluctuations in asset holdings. This includes an increase in the burden
placed on enterprises expected to serve as mainbanks when business conditions deteriorate.
Meanwhile, for banks to stabilize their management and meet international standards in the future, they are expected to shift to a level at which

22

Development Bank of Japan Research Report/ No. 32

portfolio risk can be offset by the earning capacity of core business operations. Consequently,
besides upgrading earning capacity, banks willneed to reexamine portfolios as indicated below.
The first point is to reduce risk assets byselling share holdings, writing off non- performing loans, and increasing the liquidity of creditedloans or through credit swaps in order to alleviate
existing asset risk. Japan needs to develop themarket basis for this portfolio rebalancing by
Japanese banks. Expanding the liquidity of stock
markets, trading non-performing loans and providing Debtor-in-Possession financing for company revitalization have already begun, and such
efforts must be aggressively pursued. The important points at that time will be to enhancemarket reliability for the fund supplying entities
that will take the place of Japanese banks and toensure that sufficient information is provided formaking investment decisions. As indicated inTable 2-5, more than one-third of the institutions
inspected by the Securities and Exchange Surveillance Commission every year since FY1997
have been advised that they are subject to administrative disposition, including suspension ofbusiness operations and the suspension of thefunctions of employees. This is powerful evidence of the lack of trust in securities market
intermediaries. Better legal compliance by secu-

Table 2-5 Supervisory System of the Securities and Exchange Surveillance Commission
Year

96

97

98

99

00

01

02

No. of inspections

86

97

78

94

97

n.a.

n.a.

No. of recommendations

11

36

34

37

33

n.a.

n.a.

Staff

207

209

224

238

250

265

364

1. The year for inspections, etc., is from July to the end of June the followingyear.
2. “Staff” represents the total budgeted staff of the Securities and Exchange
Surveillance Commission and Local Finance Bureau inspectors.
Source:Securities and Exchange Surveillance Commission “Annual Announcement”,
FSA“FY2002 Budget”

Notes:

Table 2-6 Actual Performance of the Resolution and Collection Corporation in
Non-performing Loan Purchase and Recovery Operations(1) Purchases
FY
Principal of purchased loans (a)Purchase price (b)(b)/(a)(unit: ¥100 mil.)
1st half, 1999
1,384
67
4.8%

2nd half, 1999
3,126
150
4.8%

1st half, 2000
1,505
63
4.2%

2nd half, 2000
3,717
63
1.7%

1st half, 2001
1,035
50
4.8%

2nd half, 2001
2,267
156
6.9%

Notes: 1. Purchases from sound financial institutions.
2. The first half of FY2001 includes a portion of applications from the second half of FY2000. The second half
is January-March.

(2) Recovery
FY
Total cumulative assigned book value (a)Cumulative recovered amount (b)(b)/(a)(unit: ¥100 mil.)
98
20,167
3,475
17.2%

99
31,377
9,525
30.4%

00
38,58018,89249.0%

01
42,20627,20764.5%

Note: Assigned loans are mainly from failed financial institutions.
Source: Resolution and Collection Corporation Website (http://www.dic.go.jp)

rities market agents and stricter market surveillance are essential. Fortunately, among the regulatory authorities, the Securities and Exchange
Surveillance Commission has broadly increased
staffing while developing an exclusive inspection
system for foreign securities, Internet securities,
and so forth in FY200223. Meanwhile, in May,
the Financial Services Agency concluded con23
The net increase in staff members budgeted for FY2002
is 130 for the Financial Services Agency overall, 60 ofwhom are for deployment at the Securities and Exchange
Surveillance Commission. In addition, there was an increaseof 39 staff members at the Ministry of Finance, and a total
increase of 89 brings the total to 364 staff members in
FY2002. Although there are differences in the scale of the
securities markets, fields of responsibility of institutions andso forth, the SEC in the U.S., according to its FY2001 annual report, had a staff of 3,285 as of 2001.

tracts for information exchange with the Securities and Exchange Commission and the Commodity Futures Trading Commission in the U.S.
in order to monitor and detect international
misconduct. The Tokyo Stock Exchange has also
fortified its system for legal compliance and, beginning in FY2002, began releasing the names ofviolators of market trading laws and ordinances,
all of which have resulted in an improvement inconditions.
In addition, there is also the issue of disclosure of information. Under current conditions,and reflecting strong interest in the creditworthiness of individual banks, discussions have focused on the reliability of both theself-assessment of each bank and the results of
the Financial Services Agency’s inspections. The
Development Bank of Japan Research Report/ No. 32

23

key points there are disclosure of information on
non-performing loans and their prospects. Nevertheless, this alone will not produce theinformation required to set prices when trading
corporate loans. Post-default information is also
important when actually assessing and dealing incredited loans and collateral value. In otherwords, much more information on the conditionsof collection of defaulted loans as well as examples of the disposal price of secured assets is required. Although the Resolution and Collection
Corporation discloses average values over agiven period as indicated in Table 2-6, there is
not enough information for statistical purposes.
Moreover, among advanced approaches in theuse of internal ratings proposed by the new Basel
Consultative Document, individual banks would
be capable of estimating loss given default;
however, such estimates require information for
at least one business cycle as standard. Therefore,banks and regulatory authorities need to accumulate a considerable volume of information.
At times, restructuring of borrowers requires
restructuring of business operations, but in order
to select and concentrate on profit-making operations, specialized internal information is necessary. This is an area of so-called “asymmetricalinformation”, which is beyond the ability of general outside investors to judge. Thus, there is aneed for such investors who would consider participating in management while making authoritative judgments that reflect their familiarity withthe relevant business operations.
Secondly, in regard to new loans, Japanesebanks cannot easily take the risk of becoming
involved in immature industries. In addition,
when building a balanced loan portfolio,
considerable risk tolerance is required when taking overweight positions in specific industries.
Considering their small appetite for risk, Japanese banks are unlikely to become actively involved in financing growth industries.
Like corporate restructuring, the allocationof funds to potential growth industries also requires in-depth technical judgments of business
operations by professional investors. In addition,
since the two fields have the shared characteristicof producing high earnings when successful but
also having high risk, risk money should be supplied through the market. However, risk money

24

Development Bank of Japan Research Report/ No. 32

markets remain under-developed in Japan.
Investment markets that can supply investment
funds from household finances through professional investors need to be developed. However,in view of the weakness of the financial sector, amechanism for attracting existing funds fromoverseas, combined with government engagement, should be implemented as the basis forbuilding such markets.
What other issues remain? First, whenestimating inter-industry credit shifts in thisstudy, firms were classified by industry, and only
those with capital of ¥1.0 billion or more wereconsidered. In contrast, since in recent years differences in the proficiency of business management among companies have become significant
even within the same industry, data by company
has become even more important.
In addition, in order to avoid bias in thesamples in the Quarterly Report of Corporate
Statistics, firms with capital of less than ¥1.0
billion, which were excluded from this analysis,
may also have an important influence.24
Next, activation of inter-industry credit
shifts appears to be related to economic growth,
but the mechanism by which such shifts affectthe real economy remains unclear. When estimating growth produced by external funds, it has
been considered that this growth consists primarily of physical investment and so analyses havefocused on physical investment and financial
intermediation. Nevertheless, since some burgeoning firms have few facilities in comparison
to their size, the demand for funds that will support the growth of the Japanese economy in the
21st century will require closer scrutiny.

24With regard to this point, although new business starts
are important among small- and medium-sized firms, according to Appended Table 2 (1), the rate of new businessstarts in Japan in the 1990s coincided with trends andchanges in the rate of business closures. In addition, thecomparison of Japan and the U.S. in Appended Table 2 (2)shows that both the rate of business starts and the rate ofclosures are higher in the U.S. and that a linkage can beobserved between the two rates. Many policies have beendevised thus far with the aim of protecting businesspeople;
however, the development of firms that can drive economic
growth in the future should also be encouraged.

Appended Table 1 Degree of Vigor of Inter-industry Credit Shifts(according to share changes)
0.012
0.010
0.008
0.006
0.004
0.002
0.000
77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Note:

With regard to the estimation of σˆ t of Figure 1-6, changes in the share of fund procurement by industry were used instead of therate of change in fund procurement.
1

 35 m   m  2  2


it
it
 
σˆ t = ∆  i =1 M t   M t  ∑

Appended Table 2 (1) Transitions in the Rate of New Business Starts andBusiness Closures in Japan
1989-1991
New business starts
Business closures

1991-1994
4.1
4.7

1994-1996
4.6
4.7

3.7
3.8

(unit: annual rate %)1996-1999
4.1
5.9

1 Based on the number of private-sector businesses excluding agriculture, aquaculture, forestry and fisheries
2. Since Business Office Statistical Surveys are generally conducted by the Ministry of Public Management, Home Affairs, Posts
and Telecommunications every three years, there are statistical limits in using the simple new business start and business closure rates. For example, it is not possible to ascertain the number of new business starts and business closures between surveys.
Source:FY1996, FY1999:
Ministry of Public Management, Home Affairs, Posts and Telecommunications “Business Office andCompany Statistical Survey”
FY1994, FY1989:
Ministry of Public Management, Home Affairs, Posts and Telecommunications “Business Office Registry
Development Survey”
FY1991:
Ministry of Public Management, Home Affairs, Posts and Telecommunications “Business Office Statistical Survey”
Notes:

Appended Table 2 (2) Comparison of New Business Starts andBusiness Closures in Japan and the U.S. (2000)

No. of business offices
Business starts (rate)
Business closures (rate)
Note:

Source:(unit: 1,000 companies, annual rate %)
Japan
U.S.
2,021
5,730
99 (5.0)605 (10.8)
80 (4.1)
561 (10.0)

The number of business offices and corporations that hire employees is used as the standard for both Japan and the U.S.
Japan: New business starts: Number of newly established business offices participating in the employment insurance system; business closures: Number of businesses participating in the employment insurance system that closed
U.S.: Number of companies hiring employees. These figures are estimates of the Small Business Administration.
Ministry of Health, Labor and Welfare “Employment Insurance Business Annual Report”, SBA “Small Business Economic
Indicators”

Development Bank of Japan Research Report/ No. 32

25

Appended Table 3 Major Financial Administration Items
Financial institution failures, restructuring
Establishment, Cooperative Credit Purchasing Company

1993

January:

1996

June:

26

Development Bank of Japan Research Report/ No. 32

Disclosure and accounting standards, Basel capital standard
Introduction of self-assessment ratio rules (March 1993 term settlement)
Basel Committee on Banking Supervision standard (1988): response tocredit risk
Release of non-performing loans based on the Japanese Bankers Association’s unified disclosure standards (Sept. 1995 term settlement)

Decision on time limit measure until 3/01
Full protection of deposits (amended Deposit Insurance Law)
Injection of capital into financial institutions (Financial Function Stabilization Law) credit associations and credit cooperatives at the end of March
2002
July:
Establishment, Jusen Resolution Corporation
August:Reorganization of the Tokyo Cooperative Bank and the launch of the Resolution and Collection Bank
November: Hanwa Bank
1997
April:
Nissan Life Insurance
March:
Self-assessment guidelines - Ministry of Finance inspection No. 104
Institute of Certified Public Accountants practice guideOctober:
Kyoto Kyoei Bank (business operations transferred to April:lines – Special Bank Audit Committee Report No. 4
Kofuku Bank)
Accounting procedures and auditing guidelines for writing
Merger of Fukutoku Bank and Naniwa Bank (Namioff non-performing loans and provisions
haya Bank)
November: Sanyo Securities
Hokkaido Takushoku Bank
Yamaichi Securities
Tokuyo City Bank
1998
January:
Release of self-assessment trial results
March:
Injection of public funds (first time), 21 banks, total: ¥1,815.6 billion
Commencement of self-assessment (March 1998 term settlement)
April:
Introduction of early corrective measures
Amendment of capital ratio rules (March 1998 term settlement)
September: SPC Law
Basel Committee on Banking Supervision standard (1996): Response tomarket risk
October:
Decision of financial early corrective measures
Principle for the resolution of failed financial institutions, bridge bank (Early Financial Correction Law)
Resolution and Collection Corporation (merger of Jusen Resolution Corporation and Resolution and Collection Bank)
Financial Reconstruction Commission (launched in December)
October:Long-Term Credit Bank of Japan
December:
Nippon Credit Bank
1999
January(announcement of merger of Chuo Trust & Banking and January:
Approach to write-offs and provisions when increasing
Mitsui Trust & Banking)capital- Financial Reconstruction Commission announcement
February:
Launch of Bank of Japan’s zero interest policy (Temporalily cancelled
8/00 – 2/01)
March:
Injection of public funds (second time), 31 banks, total ¥7,049.3 billion Consolidated-based disclosures (March 1999 term settlement)(until 3/02)
Release of disclosed loans under the Financial Reconstruction Law(March 1999 term settlement)
April:
Kokumin Bank
April:
Institute of Certified Public Accountants, amendment ofpractice guidelines
May:
Kofuku Bank
June:
Amendment of self-assessment guidelines – Financial
June:
Toho Life Insurance, Tokyo Sowa
Reconstruction Commission notification
Assurance of consistency between tax law andself-assessment category (March 2000 term settlement)
July:
Introduction of financial inspection manual
August:Namihaya Bank(announcement of Mizuho three-bank business integration, corporation established 9/00)
October:
Niigata Chuo Bank(announcement of merger of Mitsui Bank and Sumitomo Bank, merger 4/01)
December: Agreement by political parties in office to extend the lifting of the payoff ban until April, 2002
2000
Posting of deferred tax assets concomitant with tax effect accounting(March 2000 term settlement)March(announcement of business merger of UFJ, merger 1/02)
April(announcement of business merger of Tokyo Mitsubishi and Mitsubishi Trust, holding company established 4/01)
May:
Dai-ichi Fire & Marine Insurance, Daihyaku Mutual Life Insurance
July:
Launch of the Financial Services Agency
August:Taisho Life Insurance
October:
Chiyoda Life Insurance, Kyoei Life Insurance
2001
January:
Submission of a bill for the amendment capital ratio
regulations
March:Start of quantitative easing by the Bank of Japan
Newly proposed Basel Capital Accord standard: more
September: Announcement of private liquidation guidelines
elaborate credit risk and introduction of operational risk
September(announcement of convergence of Asahi Bank with September:
Application of current value accounting, disposition of
the Daiwa Bank group)
share holding losses (September 2001 term settlement)
November: Start of special inspections by the Financial Services Agency
October:
Reversal of reserves approved (Commercial Code amendDecision to limit equity holdings of banks, etc. (starting 2004)
ment)
November:Release of the new Basel Capital Accord revision proposal
November: Taisei Fire & Marine Insurance
December:Ishikawa Bank
2002
January:
Establishment, share-purchasing organization (until 9/06)
March:
Chubu Bank
March:
Establishment, the Bridge Bank of Japan, Limited
until 2003 Concentrated coordination period for the resolution of non-performing
2006
Anticipated introductionloans by the Financial Services Agency

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List of Back Numbers (Including JDB Research Report)
No. 32 Behavior Trends of Japanese Banks toward the Corporate Sector and Their Impact on the Economy(this issue)
No. 31 Microstructure of Investment and Employment Dynamics: Stylized Facts of Factor Adjustment Basedon Listed Company Data, October 2002
No. 30 Recent Trends in the Japanese Economy: Globalization and the Japanese Economy, August 2002
No. 29 Corporate Financing Trends in Recent Years: Fund Shortages and Repayment Burden, August 2002
No. 28 Urban Renewal and Resource Recycling: For the Creation of a Resource Recycling Society, July 2002
No. 27 Labor’s Share and the Adjustment of Wages and Employment, June 2002
No. 26 Survey on Planned Capital Spending for Fiscal Years 2001 and 2002, May 2002
No. 25 Environmental Information Policy and Utilization of Information Technology: Toward a Shift in Environmental Policy Paradigm, March 2002
No. 24 The Changing Structure of Trade in Japan and Its Impact: With the Focus on Trade in Information
Technology (IT) Goods, March 2002
No. 23 Microstructure of Persistent ROA Decline in the Japanese Corporate Sector: Inter-company Disparties
and Investment Strategies, March 2002
No. 22 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation and Prospects ofEvolution, February 2002
No. 21 Survey on Planned Capital Spending for Fiscal Years 2000, 2001 and 2002, December 2001
No. 20 Current Situation and Challenges for Cable Television in the Broadband Era, October 2001
No. 19 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation, August 2001
No. 18 Introduction of a Home Appliance Recycling System: Effects & Prospects: Progress towards Utilisationof Recycling Infrastructure, June 2001
No. 17 Survey on Planned Capital Spending for Fiscal Years 2000 and 2001, June 2001
No. 16 Revitalization of Middle-aged and Elderly Workers in Japan’s Labor Markets: Requiring the Expansionof the Vocational Training Functions, March 2001
No. 15 Risk-Averting Portfolio Trends of Japanese Households, March 2001
No. 14 Consumption Demand Trends and the Structure of Supply: Focus on Retail Industry Supply Behavior,
March 2001
No. 13 Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its Background,
March 2001
No. 12 Empirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes since the1980s, based on Micro-level Panel Data, March 2001
No. 11 Survey on Planned Capital Spending for Fiscal Years 1999, 2000 and 2001, October 2000
No. 10 Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on EnterpriseData, September 2000
No. 9

Recent Trends in the Japanese Economy: Information Technology and the Economy, September 2000

No. 8

Trend of International Reorganization Affecting the Japanese Automobile and Auto Parts Industries,
June 2000

No. 7

Survey on Planned Capital Spending for Fiscal Years 1999 and 2000, June 2000

No. 6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology and Market

for Underground Remediation, May 2000
No. 5

Recent Trends in the Japanese Economy: The 1990s in Retrospect, March 2000

No. 4

Destabilized Consumption and the Post-bubble Consumer Environment, February 2000

No. 3

The Slump in Plant and Equipment Investment in the 1990s: Focusing on Lowered Expectations, theDebt Burden and Other Structural Factors, January 2000

No. 2

Survey on Planned Capital Spending for Fiscal Years 1998, 1999 and 2000, November 1999

No. 1

Corporate Strategies in Japan’s Semiconductor Industry: Implications of Development in Other AsianCountries, November 1999_________________________________________________________________________________________JDB Research Report
No. 96 Recent Trends in the Japanese Economy: Focused on Fixed Investment and Capital Stock, August 1999
No. 95 Efforts to Protect the Natural Environment in the United States and Germany: Environmental Mitigation and Biotope Conservation, July 1999
No. 94 Survey on Planned Capital Spending for Fiscal Years 1998 and 1999, June 1999
No. 93 Towards the realization of ‘environmental partnership’: A survey of Japan’s environmental NPO sector
through comparison with Germany, June 1999
No. 92 The Impact of Demographic Changes on Consumption and Savings, March 1999
No. 91 Recent Research and Development Trends in Japanese Enterprises: Technology Fusion, March 1999
No. 90 Recent Trends in the Japanese Economy: Prolonged Balance Sheet Adjustment, January 1999
No. 89 Impact of Asset Price Fluctuations on Household and Corporate Behavior: A Comparison between Japan and the U.S., December 1998
No. 88 Survey on Planned Capital Spending for Fiscal Years 1997, 1998, and 1999, December 1998
No. 87 Foreign Exchange Rate Fluctuations and Changes in the Input-Output Structure, November 1998
No. 86 Structural Changes in Unemployment of Japan: An Approach from Labor Flow, November 1998
No. 85 Recent Trends in the Japanese Economy: Characteristics of the Current Recession, August 1998
No. 84 R&D Stock and Trade Structure in Japan, August 1998
No. 83 Survey on Planned Capital Spending for Fiscal Years 1997 and 1998, August 1998
No. 82 The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public Acceptanceis Essential, May 1998
No. 81 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997 and1998 Conducted in August 1997, March 1998
No. 80 Recent Trends in the Japanese Economy: Growth Base of the Japanese Economy, January 1998
No. 79 Information Appliances: The Strength of Japanese Companies and Tasks for the Future, January 1998
No. 78 Challenges and Outlook for the Japanese Machinery Industries: Impact of ISO14000 Series and Environmental Cost, January 1998
No. 77 Current Conditions and Issues of Computerization in the Health Care Industry: For the Construction of
a Health Care Information Network, January 1998
No. 76 Household Consumption and Saving in Japan, December 1997
No. 75 The Direction of Japanese Distribution System Reforms: Strengthening the Infrastructure to Support
Diverse Consumer Choices, November 1997

No. 74 Foreign Direct Investments by Japanese Manufacturing Industries and Their Effects on International
Trade, October 1997
No. 73 The Impact of the Changing Trade Structure on the Japanese Economy: With Special Focus on the Effects on Productivity and Employment, October 1997
No. 72 An Analysis of Foreign Direct Investment and Foreign Affiliates in Japan, August 1997
No. 71 Recent Trends in the Japanese Economy: Stock Replacement and New Demand as Aspects of Economic Recovery, August 1997
No. 70 Corporate Fundraising: An International Comparison, June 1997
No. 69 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in February 1997, May 1997
No. 68 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in August 1996, August 1997
No. 67 An International Comparison of Corporate Investment Behavior: Empirical Analysis Using Firm Data
from Japan, France and the US, April 1997
No. 66 Housing in the National Capital: Analysis of the Market for Housing using Micro Data, March 1997
No. 65 The Environment for Locating Business Operations in Major East Asian Cities, January 1997
No. 64 Direction of Reconstruction of Business Strategy in the Chemical Industry, January 1997
No. 63 Reflection on Discussions Concerning Regulation of the Electric Power Industry: Deregulation of theElectric Power Industry in Japan and Implication of Experiences in the United States, December 1996
No. 62 Current Status and Future Perspective of the Japanese Semiconductor Industry, November 1996
No. 61 A Breakthrough for the Japanese Software Industry?: Responsiveness to Users’ Needs is the key, October 1996
No. 60 Recent Trends in the Japanese Economy Focusing on the Characteristics and Sustainability of the Current Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the UnitedStates and Trends in Japan, August 1996
No. 58 Selected Summaries of Research Reports: Published in FY1995, June 1996
No. 57 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1995 and 1996
Conducted in February 1996, May 1996
No. 56 Recent Trends in the Japanese Economy, May 1996
No. 55 Issues Concerning the Competitiveness of the Japanese Steel Industry, February 1996
No. 54 Changes in the Financial Environment and the Real Economy, January 1996
No. 53 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994, 1995 and1996 Conducted in August 1995, October 1995
No. 52 Current Economic Trends: Focusing on the Appreciation of the Yen and its Effects, October 1995
No. 51 Problems Concerning the International Competitiveness of the Petrochemical Industry, October 1995
No. 50 An Economic Approach to International Competitiveness, October 1995
No. 49 Selected Summaries of Research Reports Published in FY1994, July 1995
No. 48 Strategies for Improving the Efficiency of the Japanese Physical Distribution System: Part 2, July 1995
No. 47 Issues on International Competitive Strength of the Auto Industry, June 1995

No. 46 Problems Concerning the International Competitiveness of the Electronics and Electric Machinery Industry, June 1995
No. 45 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994 and 1995
Conducted in March 1995, June 1995
No. 44 Strategies for Improving the Efficiency of the Japanese Physical Distribution System, March 1995
No. 43 Capital Spending Recovery Scenario Cycle and Structure, August 1994
No. 42 Progress of International Joint Development between Industrialized Countries on the Private Level,
May 1994
No. 41 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993, 1994 and1995 Conducted in August 1994 , November 1994
No. 40 Selected Summaries of Research Reports Published in FY1993, June 1994
No. 39 Recent Trends in Japan’s Foreign Accounts, April 1994
No. 38 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993 and 1994
Conducted in March 1994, April 1994
No. 37 Economic Zones and East Asia Prospect for Economic Activity Oriented Market Integration, December
1993
No. 36 Japanese Corporate Responses to Global Environmental Issues, December 1993
No. 35 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992, 1993 and1994 Conducted in August 1993, September 1993
No. 34 Structure of Profit to Capital in the Manufacturing Industry, September 1993
No. 33 Comparison of the Japanese and The U.S. Labor Markets, October 1992
No. 32 The Relative Competitiveness of U.S., German, and Japanese Manufacturing, March 1993
No. 31 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992 and 1993
Conducted in March 1993, April 1993
No. 30 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991, 1992 and1993 Conducted in August 1992, December 1992
No. 29 Flow of Funds in the 80s and Future Corporate Finance in Japan, November 1992
No. 28 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991 and 1992
Conducted in February 1992, April 1992
No. 27 An Analysis of Foreign Direct Investment in Japan, March 1992
No. 26 Projection of Japan's Trade Surplus in 1995: Analysis of Japan's Trade Structure in the 80s, February
1992
No. 25 Intra-Industry Trade and Dynamic Development of The World Economy, November 1991
No. 24 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990, 1991 and1992 Conducted in August 1991, September 1991
No. 23 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990 and 1991
Conducted in February 1991, March 1991
No. 22 Trends of the Petrochemical Industry and its Marketplace in East Asia, March 1991
No. 21 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989, 1990 and1991 Conducted in August 1990, September 1990
No. 20 Deepening Economic Linkages in The Pacific Basin Region: Trade, Foreign Direct Investment andTechnology, September 1990
No. 19 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989 and 1990
Conducted in February 1990, March 1990
No. 18 Petrochemicals In Japan, The US, and Korea an Assessment of Economic Efficiency, February 1990
No. 17 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1988, 1989 and1990 Conducted in August 1989, October 1989
No. 16 Impact of the EC Unification on Japan’s Automobile and Electronics Industries, August 1989
No. 15 Industrial and Trade Structures and the International Competitiveness of Asia’s Newly Industrializing
Economies, August 1989
No. 14 The Japan Development Bank Reports on Capital Investment Spending: Survey for Fiscal Years 1988
and 1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988 and1989 Conducted in August 1988, September 1988
No. 12 Growing Foreign Investors’ Activities and the Future of Internationalization, September 1988
No. 11 Futures Tasks and Prospects for the Japanese Machine-Tool Industry, July 1988
No. 10 International Division of Labor in the Machine Industries Among Japan, Asia’s NICs and ASEANCountries, June 1988
No. 9

Trends of the Petrochemical Industry and its Marketplace in East Asia around Japan, May 1988

No. 8

The International Competitiveness of Japan and U.S. in High Technology Industries, April 1988

No. 7

The Japan Development Bank Reports on Private Fixed Investment in Japan, March 1988

No. 6

Economic Projections of the Japan’s Economy to the Year 2000, February 1988

No. 5

The Japan Development Bank Reports on Private Fixed Investment in Japan, September 1987

No. 4

Current Trends in the Japanese Auto Parts Industry in Overseas Production, July 1987

No. 3

Current Moves for Foreign Direct Investment into Japan, May 1987

No. 2

Overseas Direct Investments by Japanese Corporations, May 1987

No. 1

Current U.S. Consumption Trends, May 1987