ABSTRACT
This chapter believes that even in Japan’s apparently unique financial system, basic market forces are operating effectively. It looks at recent developments and argues that the time has come for a complete liberalization of interest rates. It is often argued that Japan’s financial system has the following distinctive characteristics: the predominance of ‘indirect financing’, and stemming from this – ‘credit rationing’, and the existence of an artificially low interest rates policy. Hand in hand with the belief in the predominance of indirect financing goes the view that Japan’s financial intermediaries, especially large banks, have considerable discretionary powers in deciding when and to whom they will lend, and that consequently their influence on the level of economic activity is great. There is a great difference between an artificially low interest policy and a ‘general’ low interest policy.
