As this was the first-ever default in the Japanese interbank market since World War II, market participants became skeptical that those to whom they lent money might fail at any time. Financial institutions showed strong reluctance to provide even short-term funds, and as a result a severe credit crunch occurred.
Actually, the financial crisis in Japan was triggered by this small default event in the financial markets. The second case relates to what was called the Japan premium. In 1997 to 1998, when a number of major financial institutions failed, Japanese banks were required to pay a premium for raising funds in U.S. dollars.