Directed Credit? Capital Market Competition in High-Growth Japan

35 Pages Posted: 12 Oct 2001

See all articles by Yoshiro Miwa

Yoshiro Miwa

Osaka Gakuin University

J. Mark Ramseyer

Harvard Law School

Date Written: September 2001


Observers routinely claim that the Japanese government during the high-growth 1960s and 70s rationed and ultimately directed credit. It banned investments by foreigners, barred domestic competitors to banks, and capped loan interest rates. Through the resulting credit shortage, it manipulated credit to promote its industrial policy.

In fact, the government did nothing of the sort. It did not bar foreign capital, did not block domestic rivals, and did not set maximum interest rates that bound. Using evidence on loans to all 1000-odd firms listed on Section 1 of the Tokyo Stock Exchange from 1968 to 1982, we show that the observed interest rates reflected borrower risk and mortgageable assets, and that banks did not use low-interest deposits to circumvent any interest caps. Instead, the loan market probably cleared at the nominal rates.

We follow our empirical inquiry with a case study of one of the industries where the government tried hardest to direct credit: ocean shipping. We find no evidence of credit rationing. Rather, we show that non-conformist firms funded their projects readily outside authorized avenues - so readily that the non-conformists grew with spectacular speed and earned their investors enormous returns.

JEL Classification: G21, G32, G34, K22, L52, N25, O53

Suggested Citation

Miwa, Yoshiro and Ramseyer, J. Mark, Directed Credit? Capital Market Competition in High-Growth Japan (September 2001). Available at SSRN: or

Yoshiro Miwa (Contact Author)

Osaka Gakuin University ( email )

2-36-1 Kishibe-Minami
Suita, Osaka 5645811

J. Mark Ramseyer

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-496-4878 (Phone)
617-496-6118 (Fax)

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