Recent academic papers have shown that the Japanese sovereign debt situation is not sustainable. The puzzle is that the bond rate has remained low and stable. Some suggest that the low yield can be explained by domestic residents' willingness to hold Japanese government bonds (JGBs) despite its...

We construct quarterly series of the revenues, expenditures, and debt outstanding for Japan from 1980 to 2010, and analyze the sustainability of the fiscal policy. We pursue three approaches to examine the sustainability. First, we calculate the minimum tax rate that stabilizes the debt to GDP...

As a result of deregulation, there was a dramatic shift during the 1980s in Japan away from bank debt financing towards public debt financing: in 1975, more than 90% of the corporate debt of public companies was bank debt; in 1992 it was less than 50%. This paper presents a theory of the choice...

This paper examines the financial health of the Fiscal Investment and Loan Program (FILP) as of the end of March 2001. We study the financial conditions of FILP recipients, which include public corporations and local governments. We find many are de facto insolvent. Our estimates suggest as much...

During this decade the structure of corporate finance in Japan has changed dramatically. Japanese firms that once used bank debt as their prime source of financing now rely more heavily on the public capital markets. This trend was facilitated by the substantial deregulation of the Japanese...

We argue that the deregulation leading up to the Big Bang has played a major role in the current banking problems. This deregulation allowed large corporations to quickly switch from depending on banks to relying on capital market financing. We present evidence showing that large Japanese...

This paper explores the idea that financial distress is costly because free-rider problems and information asymmetries make it difficult for firms to renegotiate with their creditors in times of distress. We present evidence consistent with this view by showing Japanese firms with financial...

In this paper, we propose a bank-based explanation for the decade-long Japanese slowdown following the asset price collapse in the early 1990s. We start with the well-known observation that most large Japanese banks were only able to comply with capital standards because regulators were lax in...

During the financial crisis that started in 2007, the U.S. government has used a variety of tools to try to rehabilitate the U.S. banking industry. Many of those strategies were used also in Japan to combat its banking problems in the 1990s. There are also a surprising number of other...

Using the "firm" quotes obtained from the tick-by-tick EBS (electronic broking system that is a major trading platform for foreign exchanges) data, it is found that risk-free arbitrage opportunities--free lunch--do occur in the foreign exchange markets, but it typically last only a few seconds....