Current Problems in the Japanese Capital Markets
In an environment of constantly rising stock prices, Japanese corporations have relied excessively on equity funding for raising external funds. This has reduced profit per stock, increased the risk of holding stocks, and made it unlikely that stock prices will continue their uninterrupted rise. The development of primary and secondary markets for corporate straight bonds is recommended. From both the borrower’s and the investor’s point of view, this development is necessary to ensure that stock prices are formed rationally and to strengthen arbitrage relationships between stocks and other financial instruments. The impetus for this development lies in the decline in the issuance of public bonds, the relaxation of issuing restrictions, and a new tender system that should allow government bonds to serve as a benchmark for the long-term rate structure. Such a move would also increase the internationalization of the yen and ease the integration of Japan’s financial markets into the global financial system.
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Anonymous
Full text: [Mitsubishi Bank Review] Jun 1989
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The Good Work On ‘Bad’ Banks
A “bad” bank is a borrowing and lending institution created by a bank holding company to absorb the troubled loans of one or more of its affiliated banks. The bad bank finances the purchase of these troubled loans by selling stock in itself and by issuing low-grade bonds and notes. Eventually, the bad bank will be liquidated after it has collected what it can on any loans purchased. In theory, it seems that there are several advantages to bad banks. The operating expenses of the “good” bank that sold its troubled loans can be reduced. The good bank also may find a reduction in its deposit and nondeposit borrowing costs. One problem with bad banks is that a hoped-for improvement in profits and stock price after setting up the bad bank and the elimination of the good bank’s problem loans will not necessarily occur.
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Rose, Peter S.
Full text: [Canadian Banker] Nov/Dec 1989
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Stocks Jump As Tensions in Gulf Ease
The catalyst to soaring stock prices is the easing Middle East crisis. As a result, oil and gold prices fell while bond prices rallied, sending yields lower.
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Kadlec, Daniel
Full text: [USA TODAY] Oct 2, 1990
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