Shinji Takagi

Recent developments in Japan's bond and money markets

Abstract This paper traces the evolution of Japans bond and money markets, which were for many years characterized by market segmentation, regulated interest rates, and a limited menu of financial instruments. Beginning in the late 1970s, the authorities responded to a major structural change in the real economy by liberalizing the financial system. Consequently, the bond and money markets have expanded rapidly and, with the elimination of legal barriers and a fall in transactions costs, different components of these once-segmented financial markets in Japan have become highly integrated. However, market liberalization is not yet complete, and further liberalization is likely to occur with implications for the regulation of other aspects of the financial system.

The Japanese equity market:Past and present☆

This paper discusses matters of economic interest related to the Japanese equity market. Among other things, it emphasizes the futures market in shares of the companies that managed the stock exchanges as an important element of the pre-WWII market; the ‘stock market crisis’ of 1965 as an event that conditioned the subsequent course of public policy and institutional developments; the zaraba (continuous auction) method as the microstructure of the exchanges; and the uneven distribution of stock ownership and trading, the poor performance of investment trusts, and the high degree of concentration in the securities industry as the key contemporary features.

A Proposal for Exchange Rate Policy Coordination in East Asia

This book makes concrete macroeconomic policy recommendations for Asian economies aimed at minimizing the impacts of an economic and financial downturn, and setting the stage for an early return to sustainable growth. The focus is on short-term measures related to the cycle. The three main areas addressed are: monetary policy measures to achieve both macroeconomic and financial stability; exchange rate policy and foreign exchange reserve management, including the potential for regional exchange rate cooperation; and ways to ease the constraints on policy resulting from the so-called ‘impossible trinity’ of fixed exchange rates, open capital accounts and independent monetary policy.

A basket peg policy: Operational issues for developing countries

Abstract While many developing countries have recently adopted a basket peg, there has been little discussion of the operational aspects of such an exchange rate policy. This paper will discuss major operational issues that are unique to the implementation of a basket peg policy, including the choice of a valuation method, the provision of forward facilities, the frequency of exchange rate quotations, public disclosure of the basket composition, the width of margins and the frequency of adjustment in the basket. It is argued that, in the resolution of many of these issues, the trade-off between rules and discretion becomes the determining principle.

Testing the multilateral version of purchasing power parity: an application to Burma and Jordan under the SDR peg, 1981—5

This paper derives the multilateral version of the classical purchasing power parity (PPP) hypothesis, as it applies to the determination of the price level in a small open economy under a basket peg arrangement. This is tested under the assumption of constant market clearing as well as that of slow price adjustment in the non-traded good sector. The result based on Burma and Jordan, the currencies of which were pegged to the Special Drawing Right (SDR) during 1981–5, supports the validity of the hypothesis, namely, that the price level in such an economy is determined by the currency share-weighted average of the price levels in those countries whose currencies are included in the chosen basket.

Measuring the Economic Impact of Monetary Union: The Case of Okinawa

Data from Okinawas monetary union with the United States in 1958 and with Japan in 1972 are used to obtain a quantitative indication of how monetary union might affect the behavior of nominal and real shocks across two economies. With monetary union, the variance of the real exchange rate between two economies declines, and their business cycle linkage becomes stronger. A VAR analysis of output and price data for Okinawa and Japan further indicates that the contribution of asymmetric nominal shocks in business cycles becomes smaller. Monetary union thus seems to facilitate both nominal and real convergence.

Improving Macroeconomic Stability

Although the initial impact of the global financial crisis on the region appeared limited, Asia was hit hard when the crisis spread to the real sector and caused the volume of world trade to collapse. Policymakers in almost all economies in the region responded to the sharp contraction of output by easing macroeconomic policies. However, the output gaps they faced were quite different, reflecting differences in business cycles. Subsequently, almost all economies in the region experienced a narrowing of the output gap. This chapter draws broad lessons from the recent macroeconomic policy experience of the region’s economies. It reviews and assesses the principal measures taken by Asian and other economies in response to the global financial crisis in the area of monetary policy, fiscal policy and exchange rate/reserve management policies, and provides policy recommendations on how to improve the effectiveness of macroeconomic policies.

Foreign Exchange Intervention and Monetary Policy: A Tale of Two Agencies with Conflicting Objectives

In several industrial countries, the government is responsible for foreign exchange intervention while the central bank is given operational independence in conducting domestic monetary policy. We model the interaction between the two agencies when their views differ and generate empirical implications using lattice-theoretic techniques. Japanese data from 2001–2004 support the models predictions with respect to central bank behavior. The evidence is less conclusive as to whether the massive intervention of 2001–2004 by the Ministry of Finance caused the Bank of Japan to raise the monetary target.