Reluctance to Lend and Its Spatial Differences in Japanfs Lost Decade: What Can We Learn from It?

This paper aims to elucidate whether supply side factors played a crucial role in causing the greluctance to lendh in Japan in the 1990s. We estimate loan supply and demand functions using prefectural panel data and calculate their shifts. Our analysis reveals that the demand side played an equal or greater role, even in the context of the historical financial crisis in Japan during the period 1997-2000, and that the reluctance to lend was severer in the urban prefectures. These findings suggest that countermeasures in the banking sector that uniformly influence all regions may not achieve the expected recovery.