The financing of Japanese industry

• The rapid expansion of the Japanese economy has been founded mainly on a high rate of productivity growth stimulated by a high level of investment.
• The banks have played the major financing role, encouraged by high personal savings, tax incentives and the group structure of Japanese industry. One consequence is that industrial companies typically have high debt ratios and low equity ratios-although this feature is exaggerated by differences between Japanese and western accounting practices.
• Despite its success in contributing to Japan's economic growth, this system has some disadvantages and problems, and changes are in evidence. Following the first oil crisis, industry is becoming more reliant on internal funds and is diversifying its sources of external finance away from the banking system and towards the capital markets, both at home and overseas.
• These trends are likely to continue, with the result that equity ratios in Japanese industry will rise, if only slowly, and the financial behaviour of industry and the banking system may move closer to that obtaining in other developed countries.

The financing of Japanese industry