Okayama Economic Review
Published by the Economic Association of Okayama University

The Bubble and Monetary Policy in Japan: 1984-1989

Ichinose, Atsushi
There will be no great opposition, among Japanese people, to the assertion that the problem of non-performing debt was the most important inducement to the present serious depression in Japan. The non-performing debt problem was brought about by the huge swell of the bubble in the later 1980's and its collapse after entering 1990's. As for the causes ofthe bubble formation several useful books were published rather intensively during 1992-93. But in February 1994, Mr. Mieno, the then Governor of the Bank of Japan, stated at a lecturing speech that the causes of the bubble had not been clarified yet. He enumerated some problems to be solved, for example why bubbles took place almost simultaneously over the world, and why such tremendous rise of asset prices occurred. Basically this reflection seems to be right. Relevant researches, which were published mostly during 1992-1993, if we dare to simplify, pointed out two factors as the important causes of the bubble: various financial de-regulations and long-lasted cheap money policy which was closely concerned with the so-called "international cooperation of economic policy" in 1986-87. This paper is not against these arguments at all. However it calls attentions to the fact that preceding researches have overlooked an important problem to be solved: that is to say, the problem of the correlation between the rapid appreciation of yen and the soaring up of asset prices. The paper tries to analyze the simultaneous development of yen appreciation and asset inflation. Consequently it points out that the key factor was the massive inflow of foreign short-term capital. In other words, banks took in huge short-term money from abroad and lent it to firms as impact loan, which is presumably a peculiar Japanese financial instrument. Firms converted borrowed dollar into yen and invested it in asset markets. In the case of stocks, Tokkin & Fan-tora, deposited with trust banks, played an important role as the intermediary. Thus the prices of assets rose steeply. The banks' huge taking-in of foreign short-term money resulted in a strong selling pressure on US dollar in the exchange market. Thus the dollar fell and the yen rose. A pioneering work along this line is S. Nakao (1991). Unfortunately he confines his interest to the relation between the activities of banks and the appreciation of yen, putting the codevelopment of yen appreciation and the asset inflation out of his argument. In addition, preceding researches, which stress the financial deregulations as the most important cause of the bubble, tend only to enumerate various de-regulations. And they seem to have been unsuccessful in clarifying what part of the deregulations was crucial. This paper deems the abolitions of regulations on impact loan and on yenten as crucial. It was these de-regulations that played by far the most important roles in the formation ofthe bubble. Finally, the reader will see some concluding remarks at the end of the paper. The main concern of the paper lies, however, in the field of fact verification. What to learn or derive from verified facts belongs rather to a role of politicians and high officials.
論説 (Article)