Local government finance in Japan : Can irresponsible borrowing be avoided?

Rapidly rising local government debt in Japan presents a nontrivial addition to the central government debt. The planned replacement of the approval system for local government bor- rowing by a `consultation system´ in FY 2006 does not remove the implicit central govern- ment guarantee for local debt and thus the moral hazard involved in the system. Given all the risks associated with high debt levels (crowding out, inflation, potential insustainability) and the bad selection of projects financed under the current system, we suggest to restrict local government borrowing to user based revenue bonds, where investors receive the future revenue of the project and have an incentive to carefully select and monitor the projects they finance. In a generation model we show that this not only improves the sustainability of local government debt, but that it is highly likely that the debt will be sustainable. --Government debt,sustainability,local government borrowing,local finance,Japan,generation model,government bonds,user based revenue bonds

A Simulation of the Macroeconomic Impact of ODA with the Debt Factor: The Philippine Experience

Foreign aid has always been treated as “cheap mons.” In the past, aid studies almost always implicitly assumed that the economic impact of ODA loans is negligible. This paper, however, takes an opposite view and presents that ODA debt implications do matter. It is proposed that while aid carries “softer” terms that reduces the burden of a given debt, it may not always be intuitively obvious that these “softer” repayment terms will also produce a larger debt out of a given flow of loans resulting to higher interest rate.economic growth, official development assistance

A Simulation of the Macroeconomic Impact of ODA with the Debt Factor: The Philippine Experience

Foreign aid has always been treated as “cheap mons.” In the past, aid studies almost always implicitly assumed that the economic impact of ODA loans is negligible. This paper, however, takes an opposite view and presents that ODA debt implications do matter. It is proposed that while aid carries “softer” terms that reduces the burden of a given debt, it may not always be intuitively obvious that these “softer” repayment terms will also produce a larger debt out of a given flow of loans resulting to higher interest rate.economic growth, official development assistance

Japan's monetary policy transition, 1955-2004

This paper surveys the postwar evolution of Bank of Japan (BOJ) monetary policy. Using both qualitative and quantitative data, we describe the changes in the money supply process in response to changing institutional constraints. We focus on the transition from quantitative to qualitative control mechanisms, illuminating, in particular, the important role of the BOJ’s lending guidance (window guidance) in the early periods and financial liberalization in subsequent periods. Monetary policy reaction functions are estimated and used to verify major changes in policy instruments, targets, and indicators.Japanese Monetary Policy

Japan's Monetary Policy Transition, 1955-2004

This paper surveys the postwar evolution of Bank of Japan (BOJ) monetary policy. Using both qualitative and quantitative data, we describe the changes in the money supply process in response to changing institutional constraints. We focus on the transition from quantitative to qualitative control mechanisms, illuminating, in particular, the important role of the BOJ=s lending guidance (Awindow guidance@) in the early periods and financial liberalization in subsequent periods. Monetary policy reaction functions are estimated and used to identify major changes in policy instruments, targets, and indicators. We analyze the historical behavior of the money multipliers and their components, highlighting reasons for their current depressed state. We conclude with comments on current challenges facing the monetary authorities.Monetary policy, Bank of Japan

The Impact of Monetary and Tax Policy on Income Inequality in Japan

This paper assesses the effects of the most recent monetary policy behavior of the Bank of Japan (BOJ) (in particular, zero interest rate policy and negative interest rate policy) and Japanese tax policy on income inequality in this country during the period of 2002Q1 to 2017Q3. The vector error correction model that develops in this research, shows that increase in money stock (m1) through quantitative easing (QE) and quantitative and qualitative easing (QQE) policies of the BOJ significantly increases the income inequality. On the contrary, Japanese tax policy was effective in reducing the income inequality. Variance decomposition results show after ten periods almost 87.15% of the forecast error variance of the inequality is accounted for by its own innovations and 3.76% of the forecast error variance can be explained by exogenous shocks to monetary policy shock—the money stock (M1). The short-term interest rate also accounts for the increase in inequality by 0.47%. On the other hand, the total tax and real gross domestic product contributed in reducing the inequality measure, respectively, by 6.65% and 1.96% after 10 periods

The Basket-peg, Dollar-peg and Floating: A Comparative Analysis of Exchange Rate Regimes

currency basket, financial crisis, exchange rate regime, dollar-peg, basket-peg, floating exchange rates, optimal weights

Japanese Banks' Decision Making Process in SME Lending: An analysis of the SME database and the utilization of investment and trust funds for SME financing (Japanese)

This paper comprises three sections. First, it examines whether or not and how banks use non-quantitative data on borrowers, such as the management skills and personality of owners of small and medium-sized enterprises (SMEs), when making lending decisions. Second, it explores the possibility of utilizing data collected from SMEs to assess the risk of their default. Third, it proposes a way to provide money to start-up companies and riskier businesses in the region. The first chapter is based on data collected through an interview survey conducted by Professor Tadanori Nemoto (Chuo University), Wako Watanabe (Keio University), and Yoshiaki Ogura (Ritsumeikan University). They found that qualitative data are used more often at the branch office level than at the headquarters level in making lending decisions. This shows that those working at headquarters prefer to use solid data when making their lending decisions whereas intuition and the borrowers' behavior play a large part in the decision process by those working at branches. In future research, an empirical analysis will be required to determine whether qualitative data are in fact sometimes important for SME lending and whether quantitative data are important even in the case of SMEs. The second chapter reviews the Credit Risk Database (CRD), a database of financial and non-financial information on Japanese SMEs. The chapter explains the mechanism of how SME data collected by prefectural and municipal credit guarantee corporations are integrated into the database. It also points to the importance of ensuring the independence of the database, which can be achieved by allowing the CRD Association (the administrator of the database) to secure revenue sources by offering consultation services to banks, such as the computation of default probabilities, for example. The establishment of a similar database of SME information in other parts of Asia would put Japanese SMEs and Japanese banks in a better position in launching and expanding operations in the region. Such a database would also help lower the default risks for SME lending in Asian countries. In this regard, cases related to Thailand and Indonesian are briefly discussed. The third chapter discusses ways of channeling more funds to start-ups and other relatively high-risk businesses. As the venture capital market in Japan is still not well developed, it is necessary to explore different channels to supply funds to SMEs and start-ups. This paper proposes the creation of regional investment and trust funds, which would be sold to the general public through regional banks and post offices. The funds are not on banks' balance sheets as they are not collected from depositors and any losses incurred by the funds are to be borne by investors. This is to say that banks and post offices are simply serving as sales agents. A few specific examples of such investment and trust funds are presented.

KNOWING THE UNKNOWNS – FRESH INSIGHTS FROM AN UNKNOWN STOCK MARKET

The goal of our study is to examine the impact of natural disasters on the South Pacific Stock Exchange. We use daily time-series data for Fiji’s stock market for the period 2000-2019. Our empirical framework is based on three factor regression models, namely the market model, the Fama and French three-factor model, and the Fama and French five-factor model. We find evidence that natural disasters in Fiji reduce abnormal returns in the most relevant five-factor model. Additionally, we provide evidence that different types of natural disasters have heterogeneous effects on Fiji’s stock market. Our findings are further supported by a robustness check