Liquidity Constraint and Household Portfolio in Japan

In this paper, we analyze the financial asset selection behavior of Japanese households. Especially, we focus on whether or not liquidity constraint decreases the amount of a householdfs risky assets. To investigate this, we first empirically examine which types of household suffer from liquidity constraint. Then, based on the probability obtained from this first stage, we use the Tobit model to estimate the risky asset ratio (=risky asset/total financial asset), and examine the relationship between liquidity constraint and household portfolio. Our results show that the more households suffer from liquidity constraint, the less the households hold risky assets. This is consistent with previous empirical research on Italian households, implemented by Guiso et al.(1996). Our research suggests that the Japanese post-war financial system, which has provided money primarily to the industrial sector rather than the household sector (e.g. consumer loans), might lower the amount of risky assets held by Japanese households.