With regard to the balance-sheet adjustment of Japanese firms, there have been serious efforts by firms to reduce their liabilities since the bursting of the economic “bubble.” Despite these efforts, the mismatch between assets and liabilities expanded in many sectors until 1994 or 1995 due to the continued decline in real estate prices.
While the decline in asset prices has slowed since 1995, liabilities have decreased owing to the recovery in corporate profits which followed firms’ restructuring efforts and lower interest rates. Several indicators, such as the ratio of long-term debts to assets at market value, reveal that balance-sheet adjustment pressures are persistent.