Depositors’ Response to Deposit Insurance Reforms: Evidence from Japan, 1990–2005

We empirically investigate depositors’ response to various bank risk measures under different deposit insurance regimes. We find that depositor discipline is most significant during periods of full insurance coverage rather than during limited insurance coverage, and that deposit withdrawal induces bank managers to carry out aggressive restructuring. Our evidence suggests that the magnitude of depositor discipline is affected by both the extent of insurance coverage, and by the degree of public confidence in the stability of the financial system and the extent of regulatory forbearance. There is little evidence that higher interest rates at riskier banks promote depositor discipline.     

Consumption loans under uncertainty

A stationary equilibrium for a sequence of markets under uncertainty is defined as a stationary stochastic process of temporary market equilibria. The purpose of this paper is to apply this equilibrium concept to a consumption-loans model with stochastic resources. Given that agents live for only two periods, that resources are allocated independently and identically, and that traders make “admissible” consumption decisions, it is shown that the sequence of equilibrium trades on forward markets is a Markov chain. When this chain is strictly stationary with a unique invariant distribution, the sequence of markets is in stationary equilibrium. Using Gale's classification scheme, a strictly stationary chain exists for each type of economy (classical, Samuelson, mixed). Questions concerning convergence to the invariant distribution for each type of economy are addressed by determining when the chain satisfies various recurrence conditions.     

Liquidity and Pricing of Credit Default Swaps in Japan: Evidence from a Benchmark Index for Corporate Debt Claims

This article is a contribution towards the growing empirical literature on the relationship between liquidity and pricing of credit default swaps (CDSs). To the best of my knowledge, the article becomes the first to show that market liquidity does matter to CDS pricing in Japan, by looking into a sole benchmark index of CDS trading for investment-grade debt claims, or the Markit iTraxx Japan (MiJ). The impact of illiquidity on MiJ premia has declined since the International Swaps and Derivatives Association introduced new trade practices in April 2009. The liquidity of the MiJ has increased since the Japan Securities Clearing Corporation started operating as a central counterpart for the MiJ in July 2011. The price discovery ability of the MiJ has also increased since then.     

The right to adequate housing: evictions of the homeless and the elderly caused by the 2020 Summer Olympics in Tokyo

Abstract

The reconstruction of the National Stadium for the 2020 Summer Olympics and Paralympics in Tokyo has induced displacement of two groups of vulnerable people, raising concerns of the violation of human rights, particularly the right to adequate housing. The expansion of the stadium led to the expulsion of dozens of homeless people who lived in and around the park surrounding the stadium, and a sudden decision to demolish a nearby public housing estate built for the 1964 Summer Games forced over 200 tenants, most of whom were elderly, to be relocated. While the homeless people engaged in several rounds of negotiation with the government authorities, the majority of the housing tenants reluctantly agreed to move except for a few who kept demanding respectful treatment from the metropolitan government. Presenting the preliminary results of a mixed-method three-year qualitative study, this research note demonstrates that while the authority might have offered alternative housing considered ‘adequate’ in terms of physical living conditions, the process of evictions did not afford autonomy for the affected to choose where to live. The respective status of the affected – homeless and elderly – may demand the reconsideration of the concept of ‘adequate housing’ in relation to human dignity.     

MATCHING FUNCTION FOR THE JAPANESE LABOUR MARKET: RANDOM OR STOCK–FLOW?

This paper estimates outflow equations for the unemployed and job vacancies under random and stock–flow matching using Japanese data. We find that for the outflow of the unemployed, the stock–flow matching model fits better than the random matching model at the quarterly frequency, but not at the monthly frequency. In contrast, the outflow of vacancies is affected by the stock of the unemployed as well as its inflow at both monthly and quarterly frequencies. In addition, we calculate the exit rates of the unemployed and job vacancies to show the relationship between the exit rates and the durations of unemployment and job vacancies.     

Employment and hours of work

This paper develops a dynamic model of the labor market in which the degree of substitution between employment and hours of work is determined as part of a search equilibrium. Each firm chooses its demand for working hours and number of vacancies, and the earnings profile is determined by Nash bargaining. The earnings profile is generally nonlinear in hours of work, and defines the trade-off between employment and hours of work. Concave production technology induces firms to overemploy and, as a result, hours of work are below their optimal level. The Hosios condition is not sufficient for efficiency. When there are two industries, workers employed by firms with higher recruitment costs work longer and earn more. That is, “good jobs” require longer hours of work. Interestingly, technology differentials cannot account for working hours differentials.     

The role of foreign direct investment in Indonesia's manufacturing exports

This article examines whether foreign direct investment (FDI) has contributed to the changing structure of Indonesia's manufacturing exports. It uses industry-level data from 1990 to 2008, classified by factor intensity. Our analysis reveals that FDI promotes exports in most panel observations, especially exports from physical-capital-intensive (PCI), human-capital-intensive (HCI) and technology-intensive (TI) industries. Yet by applying a differentiated cross-section-effect model, we determine that the export-generating potential of FDI is stronger in PCI, HCI and TI industries than in natural-resource-intensive or unskilled-labour-intensive industries, in which Indonesia has a comparative advantage. We also assess the influence of other determinants of export performance – namely, private domestic capital investment, GDP growth and exchange rates. Our findings have implications for policymakers seeking to sustain Indonesia's export performance.     

Towards a sustainable growth path

For Japan’s economy, there were two tasks I embraced myself for: “how to return to a sustainable growth path” and “how to rebuild the financial system.” And for the Bank of Japan, there was also the important challenge of navigating our way on a new voyage in line with the principles of the new Bank of Japan Law, which came into effect at almost the same time as I became Governor.     

The Relationship Between Bank Risk and Earnings Management: Evidence from Japan

Using stock price data drawn from the 1990s in Japan, this paper empirically shows that bank risk is negatively associated with discretionary accruals, indicating that investors misinterpreted high reported earnings as favorable information about bank financial health. We also show that the negative relationship was very powerful prior to the major bank failures in late 1997 and 1998, but it diminished subsequent to the failures. We conclude that investors started to anticipate potential manipulation of financial reports by bank managers more rationally after the major bank failures.