Munehisa Kasuya

Deteriorating Bank Health and Lending in Japan: Evidence from Unlisted Companies under Financial Distress

Abstract When a borrower faces a hold-up problem, deteriorating bank health might reduce a borrowers credit availability. However, a bank with an impaired balance-sheet might attempt to ‘gamble for resurrection’ and hence might increase risky lending to zombie firms. The purpose of this paper is to investigate what impacts weakened financial conditions of banks had on loans outstanding to medium size firms in Japan. Estimating lending functions, we examine the determinants of lending to unlisted Japanese companies in the late 1990s and the early 2000s. We find that two alternative measures of the bank health, regulatory capital adequacy ratios and ratios of non-performing loans (NPLs), had opposite impacts on lending. In the case of regulatory capital adequacy ratios, its deterioration had a perverse impact on the banks lending. The deteriorating NPL ratios, however, increased lending to troubled firms to keep otherwise economically bankrupt firms alive.

Regime-switching approach to monetary policy effects

Even though monetary policy has kept interest rates at historically low levels, the Japanese economy has experienced long lasting recessions since the 1990s. In this paper, Japanese data are employed to conduct an empirical analysis of changes in the effects of monetary policy on the real economy. It is found that monetary policy effects vary depending on the phase of the business cycle and the lending attitudes diffusion indices. More precisely, policy effects are larger in recession but diminish in extreme recession, and monetary policy is more effective when lenders’ attitudes are severe but less effective when they are excessively severe.

A Rise Of China And The Japanese Economy: Evidence From Macro- And Firm-Level Micro-Data

After prolonged recessions, the Japanese economy had recovered in the first half of the 2000s and recorded sustained growth until summer 2007. The purpose of this paper is to examine the role of international trade with China for the recovery of Japanese firms in the 2000s from both macro- and micro-perspectives. Using aggregated data, Vector Autoregression suggests that the increased exports to China had a strong positive impact on Japanese manufacturing production but had insignificant impact on small firms and non-manufacturing production during the last decade. It also shows that the increased imports from China had no significant impact on Japanese production. However, using firm-level data, we find that various connections with China improved performance of small- and medium-size firms in manufacturing industry and in wholesale and retail industries. In the micro-level, the imports from China improved growth of sales in manufacturing firms and both profits and growth of sales in wholesale and retail industries since the early 2000s. The exports to China, which had no significant impact in the early 2000s, came to improve both profits and growth of sales of Japanese firms after the mid-2000s. However, not all connections with China had beneficial impacts on the small- and medium-size firms. The micro-findings suggest that the increased dependence on China had highly heterogeneous impacts on Japanese firms in the 2000s.