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Window Guidance By The Bank Of Japan: Was Lending Controlled?

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  • JAMES R. RHODES
  • NAOYUKI YOSHINO

Abstract

Over the period 1961–1991, the Bank of Japan (BOJ) attempted to directly control the volume of commercial bank credit by providing lending targets for selected banks. This policy of “window guidance” (WG) applied to only a subset of lending institutions. The guided banks involved were under no legal obligation to heed the BOJ's requests. Using actual WG data to city banks, two questions are addressed. First, did city banks comply with WG (the “compliance hypothesis”)? Second, was WG successful in controlling economywide lending or did lending adjustments by other financial institutions simply displace the lending of guided banks (the “displacement hypothesis”)? The empirical results show a high degree of compliance in the first two decades of the program and evidence of weakening in the final years. The displacement hypothesis is rejected, particularly in the early period of highly regulated financial markets. (JEL E58, E51, E52)

Suggested Citation

  • James R. Rhodes & Naoyuki Yoshino, 1999. "Window Guidance By The Bank Of Japan: Was Lending Controlled?," Contemporary Economic Policy, Western Economic Association International, vol. 17(2), pages 166-176, April.
    • Handle: RePEc:bla:coecpo:v:17:y:1999:i:2:p:166-176
    DOI: 10.1111/j.1465-7287.1999.tb00672.x
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    References listed on IDEAS

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    1. Revankar, Nagesh S & Yoshino, Naoyuki, 1990. "An 'Expanded Equation' Approach to Weak-Exogeneity Tests in Structural Systems and a Monetary Application," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 173-177, February.
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    Cited by:

    1. Dikau, Simon & Volz, Ulrich, 2021. "Out of the window? Green monetary policy in China: window guidance and the promotion of sustainable lending and investment," LSE Research Online Documents on Economics 111489, London School of Economics and Political Science, LSE Library.
    2. James R. Rhodes & Naoyuki Yoshino, 2007. "Japan’s Monetary Policy Transition, 1955-2005," GRIPS Discussion Papers 07-04, National Graduate Institute for Policy Studies.
    3. Craig Freedman, 2002. "The Collapse of the Riskless, Middle-Class Economy," The Economic and Labour Relations Review, , vol. 13(2), pages 288-325, December.
    4. Naoyuki Yoshino & James R. Rhodes, 2004. "Japan's Monetary Policy Transition, 1955-2004," Econometric Society 2004 Far Eastern Meetings 725, Econometric Society.
    5. Akihiko Kawaura, 2004. "Deregulation and governance: plight of Japanese banks in the 1990s," Applied Economics, Taylor & Francis Journals, vol. 36(5), pages 479-484.
    6. Stefan Angrick & Naoyuki Yoshino, 2020. "From Window Guidance to Interbank Rates: Tracing the Transition of Monetary Policy in Japan and China," International Journal of Central Banking, International Journal of Central Banking, vol. 16(3), pages 279-316, June.
    7. repec:zbw:bofitp:2018_004 is not listed on IDEAS
    8. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093, September.
    9. Stefan Angrick & Naoyuki Yoshino, 2020. "From Window Guidance to Interbank Rates: Tracing the Transition of Monetary Policy in Japan and China," International Journal of Central Banking, International Journal of Central Banking, vol. 16(3), pages 279-316, June.

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    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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