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Japan wrestles with guarantor role

Eiji Hirano, assistant governor of the Bank of Japan, spoke to Euromoney's Nick Parsons about Japan's views on a broadening and deepening of Asia's bond markets. He tempered his enthusiasm with an emphasis on the need for simultaneous development of the region's banking system.

Jeiji Hirano, assistant governor of
the Bank of Japan

Why is Japan supporting the development of an Asian bond market? Our experience of high growth in Japan was that financial intermediation was carried out largely by the banks and the capital markets were undeveloped. Corporates relied on bank borrowing as a source of funds but still we experienced high growth.

At the early stage of development, banking is very important. And banking is very important in Asia. But nonetheless a deep and liquid bond market is important given the very different environment facing this region compared with Japan in the high-growth 1960s and 1970s.

There is rising demand for different asset classes, backed by rising middle-class incomes, which has led to calls for a diversity of asset classes and thinking on a portfolio basis. But I should caution that it will take quite a long time for the region to see deep and liquid markets because there are so many impediments.

There is inconsistent regulation, no cross-border investment, the overall credit culture is undeveloped, a lot of things from tax to settlement are needed.

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