Japan’s dependence on the banking system, a system that has largely ceased to function, represents a further constraint on the transmission of monetary policy in that country. Thus, it seems appropriate for Japan to continue its efforts to develop deeper and more liquid capital markets.
The financial cycle tends to have larger amplitude and lower frequency than the normal business cycle. This implies that long periods of “disconnect” between the two cycles can materialise. 2 In the past, the separation between the two was not considered likely.