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Direct and Indirect Finance

Autor:   •  January 7, 2019  •  541 Words (3 Pages)  •  42 Views

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(Source; the Flow of Funds Accounts by Bank of Japan, Dec.2000)

cf. As of September 2016, the total financial assets held by the Japanese households are \1,752 trillion, 52.3 % of which goes into the category of "Currency and deposits", while the total financial assets held by the US households are $ 73.1 trillion, 13.9 % of which goes into the same category.

Answer

Throughout the 1990s, the household sector in Japan has continued to be the largest fund supplier. Gross financial assets held by Japanese households were 926 trillion yen in March 1990, which increased to 1390 trillion yen in March 2000. One of the prominent features is that safe assets for which the principal is protected accounted for a high percentage, while the percentage of risk assets, such as stocks and investment in securities, were low. Moreover, we can see that the risk aversion tendency to avoid risk has intensified over the 10 year period. The percentage of safe assets increased to 53.8% (748 trillion yen) from 48.5% (449 trillion yen). Meanwhile, risk assets decreased to 15% (209 trillion yen) from 24.7% (228 trillion yen).

By contrast, we can see that the percentage of safe assets was low in the U.S. while that of risk assets was relatively high. Moreover, the tendency became more pronounced in the 1990s. The percentage of former declined from 19.4% to 9.6% and the percentage of the latter increased to 57.6% from 52.1%. At least, this shows that the trend in U.S. was in distinct contrast to the trend among Japanese households, which prefer to avoid risk.

The most important and serious problem for financial system in Japan is that the investment portfolio preference by the household sector, the largest source of fund supply, was risk averse throughout the 1990s. Therefore, Japan’s financial structure still has to depend on the “indirect finance”. Recently, lending by Japanese banks has been decreasing from 90% (1991) to 82% (2002). It will be really difficult to raise investment from households and investors for new businesses and industries. Thus, they all depend on Japanese banks for investment, that effect to whole economic system.

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