Determinants of the Japan Premium: Actions Speak Louder than Words
40 Pages Posted: 14 Jul 2000 Last revised: 26 Oct 2022
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Determinants of the Japan Premium: Actions Speak Louder than Words
Date Written: July 1999
Abstract
Since August 1995, Japanese banks have had to pay a premium on Eurodollar and Euroyen interbank loans relative to their U.S. and U.K. competitors. This so-called Japan premium' provides a market indicator of investor anxiety about the ability of Japanese banks to repay loans. We examine the determinants of the Japan premium and find that government announcements not associated with concrete actions had little impact. On the other hand, announcements of concrete actions by the Japanese government, such as injections of funds into the banking system, tended to have an effect on the size of the Japan premium.
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