Accelerated Rise and Distorted Vigor: Unconventional Interventions into an Emerging Market of Japan

Japan experienced a rapid expansion of the capital market in the 1880-1900s, introducing Western institutions combining it with Japanfs traditional bond market regime, which provided financial source of industrialization. The rapid expansion of the infant capital market was in fact accelerated by the banking sector. Faced with the first financial crisis, the central bank decided to directly prop-up the capital market leveraged by the banking sector, through rediscounting accommodation bills collateralized by specified corporate shares. The intervention asymmetrically sustained share prices, distorted risk distribution, but stabilized the young market by socializing equity-risk of shares designated as collateral.