Discussion Paper No. 654

CREDIT RATINGSIN THE JAPANESE BOND MARKET

Nobuyoshi Yamori
Narunto Nishigaki
Yoshihiro Asai

March 2006

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan

March 2006

Credit Ratings in the Japanese Bond Market
Nobuyoshi Yamori*, Nagoya University, ISER Osaka University
Narunto Nishigaki, Okayama University
andYoshihiro Asai, Nagoya University

ABSTRACT
Recently, credit ratings have been enhancing the influence on issuers as well as the national
economy. This paper explains the historical development and several current features of theJapanese bond market, and discusses why credit ratings gained a significant role in the 1990s. We
also present empirical research on credit ratings in the Japanese bond market, and discuss how
foreign raters tend to assign lower credit ratings than Japanese ones, but that the relative ratings
among raters end up being similar. Finally, we clarify the issues that remained to be solved before
credit rating companies can be considered truly reliable.

JEL Classification Code: G24

Key Words: Credit Ratings, Bond Market, Japanese Economy, American Raters*)Corresponding author: Nobuyoshi Yamori, Graduate School of Economics, Nagoya University,
Furo-Cho Chikusa-Ku, Nagoya Aichi 464-8601 JAPAN. (tel.)(+81)52-789-4935(fax)(+81)52-789-4924 E-mail: yamori@soec.nagoya-u.ac.jp

Credit Ratings in the Japanese Bond Market

I. Introduction
Many observers (e.g., Allen and Gale 2000) regard Japan and Germany as bank-centeredeconomies and the United States and United Kingdom as market-centered economics. For
example, Figure 1 shows that German firms obtained only 1 % of funds by issuing bonds andJapanese firms obtained 8% of funds by issuing bonds during the 1997-2001 period. Thus, thebond markets in Japan and Germany have historically played only a marginal role in corporate
financing.

Figure 1 About Here

However, we would like to point out that the Japanese securities market has become important inrecent years. Figure 2 focuses on recent developments. During the late 1980s, which was called“the bubble period,” “securities excluding stocks” increased because of the increase in theissuance of equity-related bonds, such as convertible bonds and warrant bonds. Furthermore, thefinancial deregulation and reforms in the late 1990s (e.g., the Japanese Financial Big Bang) havefostered the securities markets, and the share of securities in private firms liabilities has reachedaround 8% 1 . Thus, although the absolute level is not yet high if compared with the U.S. figure, it
is clear that the bonds market has steadily increased its importance in Japanese corporate
financing.

1

Current Flow of Funds statistics (93SNA Base) are available since 1979. According to the old

Flow of Funds statistics (68SNA base), total liabilities of Japanese non-financial corporations at
the end of the first quarter of 1965 were 48.3 trillion yen, while “securities excluding stocks” andloans of Japanese non-financial corporations were 1.7 trillion yen and 24.7 trillion yen,respectively. Therefore, securities excluding stocks accounted for only 3.5% of total liabilities.
Their share had decreased to 2.4% at the end of the first quarter of 1974.
1

Figure 2 About HereWith the development of the bond market, credit ratings have been enhancing the market's
influence on the economy since the 1990s. As explained below, for a long time after the Second
World War, only firms that were unlikely to fail (such as utility companies) were allowed to issue
bonds. Furthermore, even when issuers went to bankruptcy, all bondholders were protected
because bondholder ’s main bank, which served as a commission bank, usually purchased all
bonds at face values. Therefore, bond investors did not have to worry about the probability ofissuers’ defaults.
This situation changed in the 1990s. After the bond market was deregulated, firms that had notbeen allowed to issue bonds before could now issue them, and actually did issue. Unfortunately,
several bond issuers went into default. In addition, due to weakening solvency, banks could nolonger absorb bondholders’ losses. Regarding private placement domestic bonds, Muramoto
Construction, which failed in 1993, defaulted its bonds for the first time in Japan. Following
Muramoto’s default, there have been a number of failures which have caused financial losses tobondholders (see Table 1). Furthermore, as shown in the Table, the collection rates were on
average lower in Japan than in the United States, where the rates are alleged to be about 40%.
Because of these low collection rates, investors evaluated the risk of bonds carefully. Reflecting
the needs of investors, credit ratings began to play an important role in the Japanese bond market.

Table 1 About Here

This paper aims to explain the current role and issues of credit ratings in the Japanese bondmarket. The paper is organized as follows. In section II, we explain the historical development of
the Japanese bond market and several features of the market up until the 1980s, during which
credit ratings were given only a minor role. In section III, we discuss why credit ratings played asignificant role in the 1990s. In addition, we provide two episodes that show the impact of credit
ratings on the nation and private firms. Although S&P and Moody’s are important raters in Japan,
there are three Japanese raters which are very different from U.S. raters in terms of rating policy.
Therefore, to enable international readers to understand the difference between Japanese and U.S.

2

raters, we provide an explanation of the important features of Japanese credit raters in Section IV.
In Section V, we present findings from empirical research we conducted on credit ratings in theJapanese bond market. We found that foreign raters tended to assign lower credit ratings thanJapanese ones, but that the relative ratings among raters became similar. Section VI concludes thepaper.

II. Brief History of the Spread of Credit Ratings in Japan
Until the Great Depression in the 1930s, most debentures in the Japanese bond market were
issued with no collaterals except foreign bonds issued by Japanese corporations. During thisperiod, conflicts between investors and defaulted issuers were incessant, and financial
institutions that undertook defaulted bonds were blamed for being remiss. Therefore, the default
disposal procedure in which undertakers ultimately purchased defaulted bonds in place of issuers
became a normal practice before the 1930s.
However, the sharp increase of defaults after 1930 made it difficult for undertakers to take overdebts. As a result, the commercial law was revised in 1938, and the so-called Rule of Compulsory
Collateral was established. The Rule required corporations to use their lands or buildings as
collaterals whenever they issued bonds.
After World War II, the Japanese Ministry of Finance (MOF) and the Bank of Japan (BOJ)
strengthened investor protection through the establishment of the Qualification Standard forBond Issuing. This Standard excluded unsuitable issuers from the bond market. To begin with,bond-issuing-suitable corporations were screened through several financial indicators such as theamount of capital stock, net assets and capital ratio. Next, selected qualified corporations wererated into four ranks (i.e., AA, A, BB and B), and the amounts that each company were allowed toissue were dependent on its rank. This ranking system is different from the American type ofcredit rating system. Japanese ranking was used to select who could issue bonds, while theAmerican type of rating was used to estimate the default risks of bonds.
Bond issuing was not attractive for corporations that had high creditworthiness, because allissuers were charged at almost the same interest rates and could not issue what they wanted
regardless of their creditworthiness. Because of this, in the 1970s many Japanese corporations

3

began to issue foreign bonds in the New York, London, and Swiss markets. This trend forced the
MOF and the BOJ to consider how to avert the hollowing of the domestic market.
In October 1977, the Securities and Exchange Council, which was an advisory committee of the
MOF, published “A Report on What the Japanese Bond Market Should Be”, in which the Council
advanced that the MOF should liberalize corporate bonds being issued in Japan. Additionally, theCouncil suggested the need to introduce an American type of rating system into Japan, whereoutsider institutions without interests for issuers could estimate the abilities of bond issuers toredeem those bonds and inform investors of these results. Furthermore, in the report, the Council
proposed the approval of debentures with no collaterals and the establishment of investors’
self-responsibilities principle. However, it took a substantial amount of time for the MOF to
implement these proposals for bond market reform.
In January 1984, the MOF and financial institutions together organized the Workshop ofDebenture Issues, and the Workshop began discussing what roles the American type of raters had
played. The Workshop then published their assessment in the report of the US-Japan Dollar-Yen
Committee. They made three crucial points in their assessment: (1) that plural rating agencies
should be established, (2) the independence of these agencies should be assured, and (3) bothissuers and investors should be required to pay rating charges.
It was in 1985 that credit rating agencies as independent organizations began to operate inJapan. During this year, Moody’s and S&P opened their offices in Tokyo, and two domestic raters,
the Japan Credit Rating Agency (JCR) and Nippon Investors Service (NIS), were established. In
addition, the Japan Bonds Research Institute (JBRI) was incorporated in the same year. In July
1987, the MOF permitted Moody’s, S&P, Fitch Investors Service, JCR, JBRI and NIS to assign
credit ratings with fees. They were called the Designated Rating Agencies. In October 1992, theMOF added Duff & Phelps, ICBA Ltd., and Thomson Bank Watching to the Designated Rating
Agencies.
However, in the first decade of the raters’ history in Japan, the Qualification Standard for bondissuing was still in effect. In February 1987, the MOF added a new rating qualification (i.e.,“above AA” or “above A with more than 55 billion yen of net assets”) to the traditional numericalstandards (e.g., 300 billion in net assets and more than 30% of the equity ratio). A corporation
satisfying either the new or traditional standards was admitted to issue bonds. However in June4

1990, the numerical standards were abolished, and the rating standard was eased from “above
BBB with collaterals” or “above A without collaterals,” to “BB with collateral” or “BBB without
collaterals” in April 1993. Finally, the Qualification Standard was completely abolished in
January 1996. That is, all firms were allowed to issue bonds if the bonds could be sold, and theinterest rates were made dependent on the issuers’ financial conditions (Yamasawa 2003).
The abolition of requirements for issuing bonds itself caused several transformations in theJapanese bond markets. Kurosawa (1999) pointed out the following two transformations. First, afirm even in the worst financial situation in principle could issue bonds by paying high interest
rates reflecting the risks. Therefore, investors needed to obtain information about the size of risks
of issuers. However, investors and analysts found it difficult to obtain relevant information forinvestment in securities because corporate disclosure was not sufficient at the time when the bondmarket deregulation was carried out.
Another transformation was that Japanese corporations were now able to issue debentures
without obtaining credit ratings. Previously the issuers had been obliged to obtain ratings fromone of the Designated Rating Agencies in the case of straight bonds, and from two or more
Designated Rating Agencies in the case of CBs. Abolition of this obligation encouraged
competition among rating agencies in the markets. As a result, in April 1998, JBRI merged withNIS and restarted as R&I. In addition, the abolition also set off full-scale activities of Moody’s
and S&P in Japan.
After the overall abolition of the Qualification Standard, the amount of issuing bonds,
particularly by high rated corporations, increased because corporations were now able to financeat low costs suitable to their creditworthiness. Figure 3 shows the recent development of straightbond markets in Japan. It is apparent that the amount issued sharply increased in the 1990s. R&I(1998) stated “the expansion of the corporate bond market has compensated for the depression of
the indirect financial system in Japan to some extent”(p.59).

Figure 3 About HereIII. Epoch-making Events Regarding Credit Ratings in Japan5

III-1. Downgrading and Financial Crisis in 1997
In the late 1990s, large-scale bankruptcies of city bank, securities companies, life and non-life
insurance companies, construction and major distribution companies occurred in quick succession.
The worst year of this financial crisis was 1997 2 . In November 1997, several large financial
institutions went bankrupt. Sanyo Securities, one of the backbone general securities companies inJapan, collapsed on November 3rd. On November 17th, Hokkaido-Takushoku Bank, one of theJapanese city banks, transferred its management right to Hokuyo Bank and in effect wentbankrupt. A week later, on November 24th, Yamaichi Securities, one of the Big 4 securities
companies in Japan, announced its decision to voluntarily close its business.
There was criticism that credit ratings intensified the crisis. On November 21st, Moody’s
announced it was downgrading Yamaichi Securities' unsecured CB’s rating from Baa3 to Ba3. On
the other hand, despite maintaining Yamaichi's rating at BBB-, S&P announced it was putting
Yamaichi on negative lists and would possibly downgrade Yamaichi's rating. Moody’s gave thefollowing reasons for downgrading Yamaichi: 1) Yamaichi had lost market trust, 2) it had
declined in financing ability, and 3) its capital position had become fragile. The day after thisannouncement, although the chief of MOF’s Bureau of Securities announced that Yamaichi was
not insolvent despite more than 200 billion yen of off-balance-sheet liabilities, participants in theinter-bank markets took the downgrade by Moody’s seriously, and stopped lending to Yamaichi
entirely. Two days later, Yamaichi’s board of directors unanimously decided to close theirbusiness.

III-2. Downgrading of Japanese Government Bonds
Credit ratings on Japanese government bonds (JGBs) are important issues for Japan, because
the total debt held by the Japanese government amounted to 751 trillion yen as of March 2005. If
2However, a careful investigation finds that fundamental changes had already realized before thecrisis. First, yields in Japanese bank debentures, which used to be the same among all banks,
started to depend on issuing banks. Second, the number of bankruptcies steadily increased. Third,in September 1997, a main bank of Yaohan Japan rejected to take up Yaohan’s CBs after its
bankruptcy. It was the first default that occurred in Japanese publicly-issued domestic bondmarket since the end of World War II.
6the interest rates of JGBs increase by 1% due to the downgrading of credit ratings, thegovernment will have to pay an additional 7.5 trillion yen, which is one-sixth of the annual tax
revenue of the government.
In April 1998, Moody’s changed the yen-denominated JGBs ratings from Aaa stable to Aaa
negative. Moody’s simply explained that uncertainty had increased as to whether it would bepossible for the Government to achieve its central aims, economic growth and fiscal improvement.
In June 1998, Moody’s released a detailed report analyzing the Japanese economy. This reportemphasized three factors destabilizing the Japanese economy: fiscal deficits, surplus in thebalanceofpayments,

anddeflationarypressure.

Eventually,

Moody’s

downgradedyen-denominated Japanese Government Bonds to Aa1 in November 1998, to A2 in September
2000, to A3 in December 2001, and A2 in May 2002. Similarly, S&P downgradedyen-denominated JGBs from AAA to AA+ in February 2001, to AA in November 2001, and to
AA- in April 2002. Fitch also downgraded yen-denominated JGBs from AAA to AA+ in June 2000,
to AA in November 2001, and to AA- in November 2002.
As of August 2005, yen-denominated JGBs have been assigned A2 ratings by Moody’s. Amongthe G-7 countries, Japan has the lowest ratings and the second lowest is Italy with Aa2, which is 3
notches higher than A2. Other G-7 countries have AAA grade ratings. Countries that have been
given the A2 grade include Israel, South Africa, Poland, Mauritius, Kuwait and Latvia. It is truethat the Japanese government is having financial difficulties. Its tax revenue only covers
approximately half of its expenditures, and about one-fifth of these expenditures consist ofinterest payments for JGBs issued in the past. In addition, if interest rates increase, then thegovernment will be unable to pay the interest. Furthermore, to judge the creditworthiness of acountry, the independence of its central bank is an important factor, because the expected
inflation rate affects sovereign risks. Despite the new Bank of Japan Law, Japan is still regarded
as not having a completely independent central bank (Iwasaki 2004).
However, the MOF was not satisfied with the decision by Moody’s and claimed that“considering the strong fundamentals of the Japanese economy, the current ratings of JGBs are
already too low and any further downgrading is unwarranted. Your explanations regarding rating
decisions are mostly subjective in nature and lack objective criteria, which invite questions about

7the reliability of rating itself” 3 .
Unlike with private corporations, it is difficult for sovereign ratings to be statisticallyconfirmed through default experiences. Kurosawa (1999) indicated that compared with the credit
ratings of private firms, the correlation between the sovereign ratings given by Moody’s andthose by S&P were lower. In addition, in the case of the monetary crisis in Asia in 1997, raterschanged the sovereign ratings of Asian countries four or five times within one year. Ferri et al.
(1999) insisted that it was credit rating agencies that aggravated the Asian monetary crisis.

IV. Japanese Rating Agencies
IV-1. General Characteristics of Japanese Rating Agencies
As we mentioned above, in 1984 the Workshop of Debenture Issues pointed out thatindependent rating agencies were necessary and that both investors and issuers should pay rating
costs. According to the “independence” criterion, credit rating agencies are required not to haveany capital and creditor-debtor relations with financial institutions that have interests in bonds
issuing or bond-related administrations. For example, if a securities company dealing with bondissuing was a major stockholder of a rating agency, that agency might be lenient in rating bondissuers who are clients of that securities company.
Despite the Workshop's proposal, the MOF decided in 1985 that credit rating agencies wererequired to be capitalized by financial intermediaries and securities firms because the experiencesof bankers in terms of screening long-term-lending and of analysts in securities firms in terms ofunderwriting bonds were necessary in order to assign appropriate credit ratings to long-termbonds. The MOF maintained that conflict of interest problems were avoidable by setting a
subscription limit per investor within 5% of the entire capital. Although the MOF's decision wasunderstandable given the circumstances of the 1980s, the capital structure of Japanese rating
agencies has not been improving since then. As a result, more than half of the stocks of JCR andmore than 40% of R&I are still occupied with financial institutions, including banks, securities
companies and insurance companies. As the U.S. Securities and Exchange Commission has not
accepted the Japanese MOF’s decision, JCR and R&I cannot sell their rating information in the3

See http://www.mof.go.jp/jgb.htm .
8

United States.
The issue of “who pays rating costs” is also important, because a rating agency could rate so as
to give the payer an advantage. If only investors were to pay the costs, the ratings could tend to
be stricter. However if only issuers pay the costs, the rating could be prone to be favorable to theissuers, who wish to finance at lower interest rates. Accordingly, as in the U.S., the Workshop ofDebenture Issues thought that both investors and issuers should pay the costs to make the ratings
fair. However, at that time in Japan, several institutional investors insisted that they had
disagreed about paying for rating information to rating agencies because firms that were in bad
financial condition were not permitted to issue debentures, and because credit ratings at that time
had no information value. Consequently, the MOF decided that only issuers would pay rating
costs for the time being, and investors would be required to pay the costs after the necessary
conditions had been arranged. Although more than twenty years have passed, the system still
remains unchanged in 2005.
Additionally, it is notable that there are two large differences between Japanese agencies andU.S. agencies in terms of rating operation. First, agencies in the United States value disclosed
information such as financial statements, while Japanese agencies tend to put a high value on
non-public information acquired through private interactions with firms. It is generally true thatthe financial soundness of Japanese corporations presented through disclosed data such as ROE,
the equity ratio and liquidity ratio is inferior to that of U.S. corporations. Therefore, the ratingsof U.S. agencies that put a high value on financial statements necessarily tend to be stricter forJapanese firms. Japanese rating agencies consider “qualitative information” as well as financial
statements. For example, they think that the cross-holdings of equities, main-banks relations,keiretsu affiliations, a convention of priority payments in debenture or the government’s back-ups
are not shown in the balance sheet but enhance the firm’s creditworthiness. It is quite natural thatthe ratings of Japanese raters which consider these factors are higher than those of American
raters 4 .
4However, there is a counter-evidence to this argument. Shin and Moore (2003) found that

despite clear difference in rating between Japanese raters (JCR and R&I) and U.S. raters(Moody’s and S&P), the rank correlations were relatively high. And they estimated ordered probit
models to test whether each of the four agencies considered keiretsu affiliation. For non-financial
9Second, Japanese agencies are slower to downgrade firms than U.S. agencies 5 . Foreign raters
anticipate the outcome of the event and change ratings in advance, while Japanese raters keep
ratings unchanged until the actual effect of the event emerges. When a situation is deteriorating,Japanese raters tend to be slow to downgrade. Therefore, Japanese raters assigned inevitably
higher rates than U.S. raters during the burst of the bubble period.
In the following sections, because Moody’s and S&P are well known to international readers,
we would like to give a detailed explanation of Japanese credit rating agencies.

IV-2. Japan Credit Rating Agency (JCR)
Japan Credit Rating Agency (JCR) was established in April 1985 and capitalized by life andnon-life insurance companies, trust banks, regional banks and long-term credit banks. In
November 1985, it began to publish “JCR Reports”, and in the next year, it started pay-rating on
yen-denominated foreign bonds.
At the end of FY 2003, the ratings of JCR covered the 64.4% (590 firms) of Japanese firms
which had obtained credit ratings. Its covering rates were especially high in the financial
business (69.8%), distribution industry (71.9%) and non-manufacturing industry (73.9%) 6 . JCR
has more actively rated foreign firms than R&I. Therefore, it has promoted business tie-ups withforeign rating agencies such as the SCI in Korea (August 2000) and the DCR-VIS in Pakistan(January 2001).
JCR does not execute non-requested ratings as a rule. JCR is considered superior to U.S. rating
agencies in that JCR publishes their reports in Japanese as well as in English, and its analysts
firms, keiretsu affiliation negatively affected its rating for one U.S. agency and one Japaneseagency. And for financial firms, both U.S. agencies assessed keiretsu affiliation positively, while
Japanese agencies did not.
5

Of course, even U.S. raters are often criticized because a firm that was rated above BBB wentbankrupted. Ratings are less prompt in reflecting new information than other market variables
such as stock prices. For example, Bongini et al. (2002) supported previous findings that credit
rating agencies have been slow in adjusting their ratings for the East Asian banks during the onsetof the East Asian crisis.
6

See http://www.jcr.co.jp/information/puroh.htm .
10

have constructed better and more loyal relations with Japanese firms and institutional investors
than U.S. agencies through closer contacts with them. Moreover, JCR examines and monitors
Japanese firms more carefully and cooperatively than U.S. agencies, and tries to describe
Japanese firms more comprehensively than foreign analysts (Fight 2003).
However, this agency has several faults. In particular, we cannot disregard the fact that it iscapitalized by about one-hundred financial institutions. Formerly JCR employed many analysts
coming from these institutions, and it was reasonably wondered whether they could properly rate
the institutions they had formerly been employed by. Of course JCR now employs many analysts
who have no relation with the financial institutions, but this independence problem still remains.
In addition, JCR was criticized for its rating ability because it assigned BBB to Mycal Co., amajor retailer in Japan, in October 2000, but it went bankrupt in September 2001.

IV-3. Rating & Investment Information (R&I)
Rating & Investment Information (R&I) originates from the Institute of Public and Corporate
Bonds established within Nihon Keizai Shinbun, Inc. (a major business newspaper) in March
1975. In 1978, the Institute published the first ratings of listed CBs in the newspaper, andtentatively started rating new CBs. The following year, the rating operations were transferredfrom an in-house sector of the newspaper company to a private organization, Japan Bonds
Research Institute (JBRI). JBRI was incorporated in April 1985 and started new rating services
such as shogun bond ratings. Another Japanese rating agency, Nippon Investors Service, Inc.
(NIS) was born that same April. This agency was capitalized by the Industrial Bank of Japan, city
banks, trust banks, regional banks, life and non-life insurance companies, and a think tankestablished by a securities company and a press company. NIS published the first issue of the NIS
Rating Information (in Japanese) in February 1986.
In April 1998, R&I was established through the merger of JBRI and NIS 7 . Nihon Keizai
Shinbun, Inc. and its subsidiaries hold fifty-six percent of the stocks of R&I, and various
financial institutions hold the rest. Therefore, this agency has the same independence problem as
JCR due to the structure of its stockholders.
At the end of October 2002, R&I rated 705 firms. It has also promoted business tie-ups with7

See http://www.r-i.co.jp/eng/company/history.html .
11

foreign rating agencies such as Fitch Ratings and NICS (an investment information company in
Korea). Furthermore, R&I has been urged to extend its rating services to academic institutions,
local governments, and special public corporations.

IV-4. Mikuni & Co., Ltd.
Unlike JCR and R&I, Mikuni & Co., Ltd. is a rating agency without the designation of the MOF.
It was established in 1975, and began offering financial analyses. It began issuing credit ratingsin 1983. In the beginning, its main business was supplying foreign investors with information
about Japanese firms issuing bonds in foreign countries. Now Mikuni’s credit ratings cover 1500
Japanese firms. 8 This number is far above those of other rating agencies in Japan.
The distinguishing characteristic of Mikuni is that it has no business tie-up with any outsiders,and is completely free from any direction from and regulation by the government. One of
Mikuni’s corporate philosophies is to keep itself independent from any companies, bond issuers,
financial institutions, brokers and government authorities because such independence enables it
to form and express its opinions freely and objectively 9 .
Other characteristics of Mikuni’s credit ratings are as follows. In contrast to designatedagencies (i.e., JCR and R&I), Mikuni earns rating charges only from investors, not from issuers,
and utilizes only disclosed information. In addition, it doesn’t use the sovereign ratings offoreign firms to estimate each debenture. In other words, in terms of the usage of sovereign
information, Mikuni is not only different from Japanese rating agencies, but from U.S. agencies,
and thus Mikuni does not change ratings easily when unexpected events such as natural disasters
or acts of terrorism occur.
Mikuni & Co., Ltd. is also well known as the strictest rater of Japanese firms. For example, it
was Mikuni that first assigned different ratings among long-term credit banks in Japan. At the endof October 2003, the ratio of investment grade to speculative grade was 1 to 2, which was far
stricter than those of Moody’s and S&P at the same point in time.

8

See http://www.mikuni-rating.co.jp/jp/jpcompany/framepagecompany.html .

9See http://www.mikuni-rating.co.jp/eng/encompany/enframepagecompany.html .
12

V. An Empirical Investigation of Japanese Credit Ratings
V-1. Overview of Straight Bond Market
As discussed in the Introduction, bond issuance is not a primary source of outside funds foraverage Japanese firms. It is apparent that small firms cannot issue bonds because of information
problems and large fixed expenditures. However, owing to deregulation, it is notable that large
firms have increased their dependency on bonds.
In addition to the increase in the volume of bond issuance, there has been an important change.
Namely, various kinds of firms now issue bonds. During the regulated period, the share ofutilities companies in the bond issue market was very large. In the 1990s, as shown in Figure 4,
the importance of utility companies as bond issuers decreased because their demand for funds
significantly decreased.
Along with these developments, credit ratings and rating agencies are playing an increasingly
important role in Japanese financial systems. We will investigate the actual credit rating practices
in Japan and answer the following questions: (1) Raters shares: How has the share of each rating
agency changed over times? (2) Multi-ratings: What kind of rater combination is popular? Who
obtains multiple ratings? (3) Differences in ratings among raters: Are there any differences inratings among raters? How have the differences changed over time?

Figure 4 About Here

V-2. Data
Here, we collected the ratings assigned at the time that new publicly-offered straight
corporate bonds were issued. We obtained the data for FY 1993 and FY 1996 from Koshasai
Nenkan (Public Bond Yearbook) and for FY 2000 and FY 2004 from the website of Shokengyo
Kyoukai (Japan Securities Dealers Association, or JSDA). Although some companies issued
corporate bonds several times in one year, we counted each as a different issuance. Anecdotally,
we attempted to analyze credit ratings in the 1980s, but there was no available data on the ratingsof corporate debts in the 1980s 1 0 .
10This is an indicator that credit ratings were not important in the 1980s.
13V-3. Results
V-3-1 Who gains a share in the rating market?
There were five qualified rating agencies in Japan before 1998 and four rating agencies after
1998, when JBRI and NIS were merged into R&I 1 1 .
Firms can issue bonds with obtaining credit ratings from one rater 1 2 . However in practice,firms often obtained credit ratings from two or more credit rating companies. Table 2 shows the
distribution of multiple ratings regarding straight bond issuance.
In 1993, more than 60% of issuances were with single credit ratings. That ratio decreased to
40% in 1996. We should note that the figures in 2000 and in 1996 were not directly comparable,
because of the merger of JBRI and NIS. If a firm obtained credit ratings from JBRI and NIS in1996 and from R&I in 2000, the firm was classified into the multi-rater category in 1996 and thesingle-rater category in 2000. The ratio of single-rater categories for 2000 and 2004 are almost
the same (i.e., around 55%). Thus, currently, approximately half of issuers obtain credit ratingsfrom two or more raters. However, it is also notable that very few companies obtain credit ratingsfrom all four raters. In other words, firms choose their raters.

Table 2 About Here

Table 3 shows which raters were chosen by issuers. In 1993, 56 firms chose JBRI as a rater.
Only 10 companies obtained ratings from JCR in 1993. In 1996, Moody’s was the top among the11

Although Fitch and Mikuni also operate in Japan, our data source does not contain any

information about ratings of these raters.
12

Strictly speaking, a firm now can issue bonds without credit ratings. However, our data source

does not contain bonds issuance without credit ratings. For example, as JSDA reported that 307
straight corporate bonds were issued in FY 2004 and our data source identified 297 bonds, at most
10 bonds were issued without ratings. Based on the similar calculations, we find that 0 for 1993,
7 for 1996, and 17 for 2000 were issued without ratings.
14

five raters, followed by JBRI. In 2000, R&I was the top, followed by JCR. The number of bonds
with ratings from Moody’s significantly decreased. In 2004, R&I assigned credit ratings to 202
issuers. This means that 73.4% of issuers obtained rating from R&I. In contrast, American raters
lost their market shares in 2004. Moody’s covered 51.8% of issuers in 1996, while it covered only
16.8% in 2004. Thus, it is apparent that Japanese rating firms increased their influence inJapanese financial markets.

Table 3 About Here

V-3-2 Who jointly assigns ratings?
As shown in Table 2, about half of issuers obtained credit ratings from two or more credit
raters in 2004. It is interesting to investigate what kind of combinations were popular and how
those combinations changed over time. For example, if American raters’ ratings are valuable forinternational investors and Japanese raters’ ratings are valuable for domestic investors, firms thatwant to sell bonds both in international and domestic markets need to obtain credit ratings fromboth American and Japanese raters.
In 1993 and 1996, as there were five raters, there were 10 two-rater combinations 1 3 . In 2000
and 2004, there were six combinations. Table 4 shows the results for 1993 and 1996. The
combination between JBRI and Moody’s (MDY) was the most popular in 1993 and 1996, followedby the combination between NIS and Moody’s. Table 5 shows the results for 2000 and 2004. In
contrast to the previous years,

R&I-JCR combination was the most prevalent in 2000 and 2004.

To put it another way, a Japanese-American combination was popular before 2000, but aJapanese-Japanese combination became popular after 2000 (see Table 6). Thus, this is consistent
with the argument that the roles of Japanese rating agencies become more and more important in
the 2000s.

Table 4 About Here13

Regarding triple ratings (such as JCR, Moody’s and S&P), we identify three two-rater

combinations; JCR-Moody’s, Moody’s-S&P, and JCR-S&P.
15

Table 5 About Here
Table 6 About Here

V-3-3 Who obtains multiple ratings?
There is a possibility that multiple ratings may be effective in mitigating information
asymmetries. If so, a firm that suffers from larger asymmetric information problems will more
likely obtain multiple ratings. However, multiple ratings may not make any difference, or makematters even worse because firms have to pay to obtain multiple ratings.
We investigated what factors encouraged issuers to obtain multiple ratings by using the 2004
data. More concretely, we tested whether the amount issued, maturity, and interest rates wererelated with the number of ratings. For example, when a firm issued larger amount of corporate
bonds and increased the leverage ratio, information asymmetries became worse. Such an issuer
has an incentive to obtain multiple ratings to reduce information asymmetries.
Table 7 shows how the number of credit ratings is related to the amount issued, maturity andinterest rate. First, when a firm issues bonds that are worth a high amount, the firm tends toobtain two or more ratings. Second, the average maturity for bonds with one credit rating is 7.29
years, while it is 8.17 years for bonds with three credit ratings. Although bonds with two credit
ratings have a longer maturity period than those with three ratings, a firm that issues bonds withlonger maturity tends to obtain more credit ratings. Finally, there is no apparent relationshipbetween the number of raters and interest rates. As multiple ratings alleviate the information
problems, interest rates obtained by using multiple ratings would be lower than those obtained
without multiple ratings. However, if the firms that have large asymmetric information problems
choose multiple ratings, then the interest rates of bonds with multiple ratings will tend to be high.
Therefore, these cross-interactions may make the relationship between the number of raters andinterest rates ambiguous.
These results are consistent with the hypothesis that credit ratings are used to mitigate
information problems. Of course, it should be noted that our results are tentative, because thedata we used here was only for 2004. In addition, we need to conduct a more formal test in which
several factors are controlled to reach a definitive conclusion.

16

Table 7 About Here

V-3-4 How do credit raters assign different ratings?
As Shin and Moore (2003) pointed out, credit rating standards are different among raters. Here,we will first investigate how different the raters's standards are. Following Morgan (2002), whoassigned each credit rating a numerical number, such as AAA=1, AA+(or Aa1)=2 and AA(orAa2)=3, we calculated the average ratings for each rater.
The results are shown in Table 8. In 1993, the average S&P rating was 1.88. As this means thatmost companies had AAA or AA+ ratings from S&P, S&P rated only highly solvent companies.
The averages of Moody’s and JCR were 5.19 and 6.13, however, suggesting that they rated
companies having relatively lower creditworthiness, if the rating standards were the same among
these raters. While the difference in the average ratings between rating companies was relatively
large in 1993, the difference became smaller in 2000 and 2004. Namely, the average ratings
ranged from 4.35 to 5.42 in 2000 and from 5.14 to 5.52 in 2004.

Table 8 About Here

Following the argument of Morgan (2002), the convergence of credit ratings is a signal of an
improvement in the information problems. Thus, due to the disclosure and accounting reforms
enacted since the late 1990s, we can tentatively conclude that credit rating companies canevaluate the creditworthiness of issuers much more precisely than before.
However, an important question must be posed. Are the criteria of rating companies really thesame? For example, Tokyo Electric Power Co. obtained a rating of AAA from JCR, AA+ from
R&I, and AA-(Aa3) from S&P and Moody’s in 2004. Similarly, JFE (a major steel maker)
obtained a rating of A+ from JCR, A- from R&I, and BBB- from Moody’s in 2004. Thus, there
was a difference of three notches for Tokyo Electric Power and five notches for JFE. Thissuggests that bond rating agencies still have different criteria.
To consider the difference in criteria, we will focus on firms that obtained more than two credit
ratings (which we call “overlapped firms” below). As explained above, there were ten
17

combinations of raters for 1993 and 1996 and six combinations for 2000 and 2004. However,
several combinations had no overlapped firms. For example, there were no firms that obtained
credit ratings from both JCR and S&P in 1993.
First, we calculated the average credit ratings for overlapped firms regarding each combinationof raters. The results are shown in Table 9. For example, in terms of the combination between
JBRI and NIS, there were 12 overlapped firms in 1993. We found that the average ratings of JBRI
and NIS for these 12 firms were 2.00 and 1.67, respectively. The results show that there are
significant difference among Japanese raters and American raters. For example, there was adifference of 2.2 notches in 1993 and 2.9 notches in 1996 between JBRI and Moody’s. Moreapparently, there was a difference of 2.8 notches in 1993 and 3.5 notches in 1996 between NIS
and Moody’s. Even in 2004, there were large differences between Japanese and American raters.
Specifically, there were 3.4 notches difference in 2004 between JCR and Moody’s.
In sum, Japanese raters assigned more favorable credit ratings than American raters. As thedifference is about three notches, a firm with a credit rating of A+ from a Japanese rater willobtain a credit rating of BBB+ from American raters. The bond market reflects this difference.
For example, as shown in Figure 5, interest rates of bonds with a BBB rating from S&P and
Moody’s are almost the same as those with an A from R&I and JCR.

Table 9 About HereFigure 5 About HereIt could be argued that absolute differences among raters may not be important, because we canadjust for the differences. However, if a Japanese rater regards Firm A as more solvent than Firm
B, and a U.S. rater regards Firm A as less solvent than Firm B, market participants will find it
difficult to evaluate relative creditworthiness between these firms. If raters are similar in terms ofevaluating relative creditworthiness among firms, the correlation coefficients of ratings should behigh. Therefore, we calculated the correlation coefficients.
Table 10 shows that simple correlation coefficients regarding overlapped firms have becomelarger over time. The correlation coefficients between JBRI and NIS were 0.934 in 1993 and0.986 in 1996. This suggests that these two Japanese raters used very similar rating criteria. The

18

coefficients between S&P and Moody’ were 0.701 in 1993 and 0.718 in 1996. This suggests that
American raters used slightly different rating criteria. Although the correlation coefficient
between JBRI and Moody’s was very high (i.e., 0.972) in 1993, the correlation coefficients
between American raters and Japanese raters were generally small. Namely, the correlation
coefficient between JBRI and S&P was 0.441 in 1993 and that between NIS and Moody’s was
0.673 in 1993. The results for 1996 were the same as for 1993. The correlation coefficient
between JBRI and NIS was very high (0.986), and the correlation coefficients between American
raters and Japanese raters ranged from 0.718 to 0.912. However, JCR was an exception. Judging
from the fact that JCR ratings were not closely related with the other raters’ ratings, JCR used a
different criteria.

Table 10 About HereIn 2000, the correlation coefficients of JCR with the other raters became higher than before.
The lowest value was found in terms of the combination of S&P and Moody’s. This suggests that
there were strong disagreements about Japanese firms’ creditworthiness between American raters.
In 2004, all correlation coefficients in 2004 except between JCR and Moody’s were close to one.
In particular, the correlation coefficients between Japanese raters (i.e., JCR and R&I) and thosebetween American raters (i.e., Moody’s and S&P) were very high. That is, these results in Table
10 are consistent with the argument that corporate disclosure reforms in the late 1990s havebrought more accurate ratings, but there are some differences in rating criteria between Japaneseand American raters.

VI. Concluding Remarks
In this paper, we pointed out the increasing role that credit ratings are playing in Japan.
However, there are a lot of problems with ratings that remain to be solved. One issue concerns
American raters in Japan. In Japan, American raters are strongly criticized because peoplesuspect that Moody’s and S&P assign inappropriately low ratings to Japanese issuers. The actual
default rates in the Japanese market do not seem to support these low ratings. Annual data19

released by Moody’s and S&P show that their ratings are closely related with actual default ratios,
but this only means that their ratings of U.S. companies are closely related with actual default
ratios, and does not mean that their ratings of Japanese companies are also closely related withactual default ratios.
Japanese managers are often unsatisfied with the reasons given for downgrading by American
raters, because they feel that American raters do not understand business practices in Japan. For
example, according to Fight (2003), Moody’s degraded the rating of Toyota Motor Corporationfrom AAA to Aa1 in 1998 on the grounds that competition in the global automobile market isintensifying, and Toyota’s competitiveness has weakened due to its practice of giving workers
lifetime employment. In refuting Moody's, Mr. Okuda, the CEO of Toyota Motor Co., argued thatthe lifetime employment system was not a burden for Toyota because it had adopted a flexible
employment structure. Eventually, Moody’s upgraded Toyota's rating from Aa1 to AAA in 2003.
Furthermore, Fight (2003) pointed out the fact that none of twenty-five Japanese corporations
that Moody’s assigned speculative grades to before 1998 had defaulted as of October 2003, while
the probability that firms rated Ba by Moody’s would default within five years was 11.4 per cent.
He pointed out that Moody’s might have disregarded specific factors in the Japanese market (e.g.,
mainbank relations) which lower default rates 1 4 .
There are also deep-rooted complaints against “unrequested ratings” by U.S. agencies in theJapanese bond market. In terms of unrequested ratings, there is a slight difference between S&P
and Moody’s. S&P clearly distinguishes “requested” and “unrequested” ratings for investors
because investors recognize that unrequested ratings rely on less information or less reliable
information than requested ratings. In contrast, Moody’s insists that they are able to maintain thesame quality for unrequested ratings as requested ones, so Moody’s doesn’t disclose thedistinction at all.
Although there is considerable evidence that American raters are not always right, there arealso serious problems with Japanese raters. As mentioned in Section IV, except for Mikuni & Co.,
Japanese credit rating agencies are not independent from issuers and financial institutions.
Namely, JCR and R&I are still substantially capitalized by financial institutions. In addition,
14

However, as he noted, such factors would be going to weaken due to the deregulations andglobalization.
20

these Japanese raters earn rating charges only from issuers. In other words, investors are not thecustomers of these raters. In fact, except for Mikuni, Japanese raters tend to assign better ratings
to Japanese issuers than American raters. It is necessary to investigate whether the capital
structure and business practices of Japanese raters distort their rating decisions.
Finally, we should point out that Japanese investors may not fully understand the meaning of
rating grades. The Japanese mass media often state that a rating below BB+ is considered an“inadequate to invest” grade, not a “speculative grade”, and Japanese investors also accept thisinterpretation. Therefore, in the Japanese market, once a firm is rated below BB+, the firm can nolonger obtain necessary funds. However, “a speculative grade” doesn’t mean that people shouldn't
purchase the firms' bonds, but just means that there are relatively high risks to purchasing thebonds and a high expected return. Therefore, Japanese investors need to be educated on how to
use credit ratings properly.
Thus, although credit ratings play a very important role in Japan, much remains to be done
before credit ratings can be considered reliable and before they can be properly used in Japan.

21

<References>
Allen, F., and D. Gale, 2000, Comparing Financial Systems, Cambridge, Mass. ; MIT Press.
Bongini, P., Laeven, L., Majnoni, G., 2002. How good is the Market at Assessing Bank
Fragility? : A Horse Race between Different Indicators. Journal of Banking & Finance 26,
1011--28.
Bremer, M., Pettway, R. H., 2002. Information and the Market's Perceptions of Japanese Bank
Risk: Regulation, Environment, and Disclosure. Pacific Basin Finance Journal 10(2), 119--39.
Ferri, G., Lui, G., Stiglitz, J.E., 1999. The Procyclical Role of Rating Agencies: Evidence fromthe East Asian Crisis. Economic Notes by Banca Monte dei Paschi di Siena SpA 28(3),335--55.
Fight, A., 2003. The Rating Game, New Material prepared for Japanese edition, Springer-Verlag
Tokyo, (the English Language edition by John Wiley & Sons, Ltd. 2001).
Institute for Posts and Telecommunications Policy of Ministry of Internal Affairs andCommunications, Research Report on Security Market and Security Investments, March
2003(in Japanese).
Iwasaki, H., 2004. Reading the “Rating” Market: Who Will Benefit from It (in Japanese),
Kobunsha Co.
Kurosawa, Y., 1999. Economics of Rating (in Japanese). PHP Research Institute Inc.
Morgan, D. P., 2002. Rating Banks: Risk and Uncertainty in an Opaque Industry. American
Economic Review 92(4), 874--88.
R&I (Rating and Investment Information Inc.), 1998. Guide to Rating (in Japanese), Nihon Keizai
Shinbun Inc.
Shin, Y. S., Moore, W. T., 2003. Explaining Credit Rating Difference between Japanese and U.S.
Agencies. Review of Financial Economics 12, 327-44.
Ujiie, Junichi (ed.), 2002, Japanese financial markets, Cambridge, England : Woodhead.
Yamasawa, K., 2003. Practical Guide to Rating and the Rating Industry (in Japanese), Toyo
Keizai Inc.
Yamori, N., Asai, Y., The Demise of Bank-centered Economy and Increasing Roles of Credit
Ratings in Japan, in Lynde, V. R. (Eds.), International Banking Issues Retail Price, Nova
Science Publishers (forthcoming).

22

Figure 1. Recent Rising Funds of Non-financial Corporations: International Comparison

FranceGermany
United Kingdom
United States
Japan
0%
loan

20%

40%

60%

securities excluding stocks

stocks

80%

100%

other

(Notes) (1) The data period is from 1997 to 2001.
(2) Figures are directly provided by the Bank of Japan. The Bank of Japan calculated thesefigures based on the Flow of Funds statistics of each country. (Bank of Japan, “International
Comparison of the Flow of Funds statistics,” December 2003.)

Figure 2. Shares of Securities Excluding Stocks in Total Liability of Japanese Non-Financial
Corporations

10%
8%
6%
4%

2001
2003

1999

1995
1997

1991
1993

1987
1989

1983
1985

0%

1979
1981

2%

(Note) Bank of Japan, Flow of Funds (93SNA base), covering the period from 1979 to today.

23

Table 1. Major Failures and Arrangement of Corporate Bonds

Company name

Total
debts
(millionyen)Collection
Rate (%)

Sep-96

Olympics Sports

35,506

N.A.

Aug-97

Daito Kogyo

159,2218

Sep-97

Yaohan Japan

161,3833

Oct-98Morisho

16,121Oct-98

Tescon11,700

40

Dec98

JDC

406,7179

Sep-01Mycal

1,388,000

N.A.

N.A.

Category ofcorporate bonds
Publicly-issued CB
in Euros
Privately-placed SB
in Swiss Francs
Publicly-issued
domestic CB
Privately-placed CB
in Swiss Francs
Privately-placed CB
in Euros
Publicly-issued
domestic SB andothersPublicly-issued
Domestic CB andSB

Arrangement ofcorporate bonds
N.A.
N.A.
Purchase of CB at 10%
of face values
Paid full values byusing collaterals.
N.A.
10% of face values in
the case of an 19 year
installment plan
N.A.

(Notes)(1) CB=convertible bonds, SB=straight bonds.
(2) The authors drew up the table based on Ujiie (2002) and the Institute for Posts andTelecommunications Policy of the Ministry of Internal Affairs and Communications (2003).

Figure 3. Development of Japanese Straight Bond Markets

number of individual issues

700

number of individual
issuesamount issued

600

100000
80000

500

60000

400
300

40000

200
20000

100
0

amount issued (100 million yen)

120000

800

0
1981

1986

1991

1996

2001

(Source) Ministry of Finance, Zaimusho Kinyu Tokei Geppou (Domestic Economy).

24

Figure 4. Bonds Issuing by Issuers

1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
0%

Corporate Bond
Utility Bond
NTT JR Bond

20%

40%

60%

80%

100%

(Note) NTT is Nippon Telegraph and Telephone Corporation, and JR is Japan Railways. Both ofthem used to be state-owned firms.
(Source) Ministry of Finance, Zaisei Kinyu Tokei Geppou.

Table 2. Number of Raters
1 rater
2 raters
3 raters
4 raters
Total

1993
54
24
6
4
88

1996
144
190
22
7
363

2000
189
104
46
11
350

2004
165
100
27
5
297

Table 3. Which Rating Company Did Firms Choose?
R&I

Rating
1993
1996
2000
2004

JBRI
56
182

Moody’s

S&P

JCR

30
188
72
50

8
30
67
28

10
101
190
170

NIS
32
117
250
218

25

Table 4. Combinations of Raters for 1993 and 1996

1993
1996

JBRI
NIS
12
21

JBRI
MDY
22
103

JBRI
S&P
7
24

JBRI
JCR
0
14

NIS
MDY
13
80

NIS
S&P
4
9

NIS
JCR
0
3

MDY
S&P
8
11

MDY
JCR
0
30

S&P
JCR
0
3

Table 5. Combinations of Raters for 2000 and 2004

2000
2004

R&I
MDY
47
39

R&I
S&P
46
19

R&I
JCR
99
96

MDY
S&P
54
23

S&P
JCR
35
22

MDY
JCR
27
12

Table 6. Combinations of Rating Agencies

1993
1996
2000
2004

Both Japanese
ratingcompanies
12
24
99
96

Japanese and U.S.
rating companies
46
263
155
92

Both U.S.
ratingcompanies
8
11
54
23

Table 7. Relationship between the Number of Ratings, Amount of Bonds Issued, andMaturity and Interest Rates in 2004
Amount of issue
Not over 100 million
100-200 million
200 million and above
Average (million yen)Median (million yen)
Maturity
Not over 5 years
5-10 years
10 years and above
Average (years)
Median (years)
Interest rate
Not over 0.75%
0.75-1.5%
1.5% and above
Average (%)
Median (%)

1 rating
90
21
56
169.42100

2 ratings
548
38
192.81100

3 ratings
81
19204.17
125

78
38
51
7.29
6

42
19
39
8.99
10

9
1
17
8.17
10

21
79
50
1.31
1.29

17
38
34
1.48
1.55

6
6
14
1.29
1.29

(Note) The figures in the rows except Average and Median depict the number of issues that fallunder the category.
26

Table 8. Simple Average of Ratings by Raters
R&I

Rating

MDY

JBRI
1993
1996
2000
2004

S&P

JCR

NIS

2.70
4.22
4.54
5.40

2.31
4.49

5.19
7.46
5.03
5.43

1.88
4.87
5.42
5.31

6.13
6.19
4.84
5.23

(Note) JBRI and NIS merged into R&I in 1998.

Table 9. Average Ratings for Overlapped Firms
19 93
19 96

JBRI

NIS

JBRI

MDY

JBRI

S&P

JBRI

JCR

NIS

MDY

NIS

S&P

2 .0 00

1 .6 67

2 .5 45

4 .7 27

1 .2 86

2 .0 00

N/A

N/A

1 .9 23

4 .6 92

1 .0 00

1 .2 50

3 .8 23

7 .3 29

2 .0 00

4 .3 33

3 .8 00

3 .6 00

3 .6 53

6 .5 35

2 .5 00

4 .1 25

4 .9 29

6 .6 43

NIS

JCR

ＭＤＹ

S&P

ＭＤＹ

JCR

S&P

JCR

19 93

N/A

N/A

1.750

1.875

N/A

N/A

N/A

N/A

19 96

6 .0 00

10 .00 0

2 .3 64

4 .8 18

9 .6 00

5 .0 33

10 .66 7

6 .0 00

R&I

MDY

R&I

S&P

R&I

JCR

MDY

S&P

S&P

JCR

MDY

JCR

20 00

4 .3 61

3 .5 88

2 .5 65

4 .9 78

4 .3 61

3 .5 88

5 .0 00

5 .7 60

4 .7 95

1 .8 46

5 .0 87

1 .5 65

20 04

3 .4 71

5 .8 24

3 .2 86

5 .5 00

5 .4 73

4 .5 16

4 .7 27

5 .4 09

6 .1 67

2 .4 17

5 .3 00

2 .1 00

Figure 5. Difference in Interest Rates for the Same Credit Ratings among Raters
1
0.95
0.9
R&I
JCR
Moody's
S&P

0.85
0.8
0.75
0.7
0.65
0.6
AAA

AA

A

BBB

BB

27

Table 10 (a) Simple correlation coefficient in 1993
JBRI
NIS
MDY
S&P
JCR

JBRI
1.000
0.934
0.972
0.441
N/A

NIS

MDY
1.000
0.673
N/A
N/A

1.000
0.701
N/A

Table 10 (b) Simple correlation coefficient in 1996
JBRI
NIS
MDY
JBRI
1.000
NIS
0.986
1.000
MDY
0.877
0.755
1.000
S&P
0.912
N/A
0.718
JCR
0.494
N/A
0.691

S&P

1.000
N/A

S&P

1.000
N/A

Table 10 (c) Simple correlation coefficient in 2000
R&I
MDY
S&P
JCR
R&I
1.000
MDY
0.906
1.000
S&P
0.798
0.644
1.000
JCR
0.936
0.785
0.959
1.000
Table 10 (d) Simple correlation coefficient in 2004
R&I
MDY
S&P
JCR
R&I
1.000
MDY
0.912
1.000
S&P
0.884
0.964
1.000
JCR
0.961
0.783
0.874
1.000

28

JCR

1.0000JCR

1.000