A Disequilibrium Analysis of the Japanese Loan Market : Were the Post-bubble Periods in Disequilibrium?

The purpose of this paper is to investigate whether demand and supply have been equilibrated in the Japanese bank loan market over the period especially after the bubble era, and if not, what the main reasons are for this state of disequilibrium. For this purpose, we have improved and extended the analysis of Asako and Uchino (1987) by taking into account notable changes in the Japanese economy. We conclude that situation of the Japanese loan market has basically been same as in the old days of Asako and Uchino (1987), although the prevailing state of disequilibrium has shifted from excess demand to excess supply. The market loan rate lacks a mechanism for rapid adjustment towards the market equilibrium rate and it is instead guided by some policy-related interest rate that does not clear the market.