Domestic corporate bonds outstanding have more than doubled over the decade while total bank loans have been almost flat. Nonetheless, banks are such a dominant source of funding in Japan that this increase in nonbank lending has not been sufficient to avert a credit crunch. The Japanese government is injecting funds into the banking system in order to recapitalize it.
While it has made some important efforts, it has yet to make significant progress in diversifying the financial system. This could be a key element, although not the only one, in promoting long-term recovery.