SYDNEY -- The near-zero interest-rate policy pursued so doggedly by Japan's government and central bank has created an incentive structure for corporate managers that encourages bank borrowing rather than turning to security markets for investment funds. In so doing, corporate borrowers face less pressure to meet the constant scrutiny that is demanded in more fluid capital markets.
At present, Japanese bank loans amount to nearly 150 percent of GDP. As in much of the rest of East Asia, this dwarfs the value of funds in its bond market, which has a value of only about 75 percent of its GDP. Conversely, the value of U.S. bonds equals nearly 110 percent of GDP, while bank loans to finance businesses amount to only about 50 percent.
Governments in emerging economies that wish to direct development know that bank lending is more sensitive to political pressures. When politicians and technocrats support a particular project, bankers see less need for risk assessment because their governments can shift the burden of losses onto taxpayers.