The Law and Structure of the International Financial System: Regulation in the United States, EEC, and Japan

By John H. Friedland | Go to book overview

system, which is itself predicated and determined by the international financial system.


NOTES
1.
By late 1990, nominal short-term interest rates had risen 350 basis points in Japan, and the growth rate of the Japanese money supply had plummeted in response. Real long-term interest rates rose by more than 200 basis points from late 1989 until late 1990. The latest decline of the Japanese stock market, which occurred between October 1991 and April 1992, saw a fall of 30% and placed the Tokyo Stock Exchange (TSE) price/earnings ratio in the neighborhood of 30, just above that for the Standard and Poor's 500 in the US market. Despite the stock market bubble and the change in short-term Yen interest rates, see notes 11 and 12 infra, the Yen-dollar exchange rate has been fairly stable, moving in a range of 123-142 until late 1992 ( Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System before the Committee on Banking, Housing and Urban Affairs, US Senate, April 19, 1992, p. 3), a far narrower percentage range than, for example, the DM-dollar range. (Testimony of Greenspan, p. 4)
2.
Allen J. Lenz, "A Sectoral Assessment of U.S. Current Accounts of Deficit: Performance in Prospects", in INTERNATIONAL ADJUSTMENT AND FINANCING: THE LESSONS OF 1985 TO 1991 ( C. Fred Burgston, ed., 1991), which tells us that the key to US external adjustment lies in the manufacturing sector. This concludes that additional devaluation is required to achieve balance.
3.
Masaru Yoshitomi, "Japan: Surprises and Lessons From Japanese External Adjustment in 1985 to 1991", in INTERNATIONAL ADJUSTMENT AND FINANCING, supra note 2, at 123.
4.
Ibid., at 142.
5.
David Meerschwam, "The Japanese Financial System and the Cost of Capital", in TRADE WITH JAPAN: HAS THE DOOR OPENED WIDER? ( Paul Krugman, ed., 1991); Jeffrey Frankel, Japanese Finance in the 1980's: A Survey, in TRADE WITH JAPAN, at 225.
6.
Frankel, supra note 5.
7.
Carl Kester, and Timothy Luehrman, "Real Interest Rates and the Cost of Capital: A Comparison of the United States and Japan", 1 JAPAN AND THE WORLD ECONOMY, 279-301 ( 1989).
8.
Carl Kester, and Timothy Luehrman, "Cross-Country Differences in the Cost of Capital: A Survey and Evaluation of Recent Empirical Studies," Time Horizons of American Management and the Harvard Business School and The Council on Competitiveness, p. 9, 1992.
9.
Firms with identical assets but different capital structures have the same cost of capital, according to the Miller-Modigliani theorem, M. Miller, and F. Modigliani , "The Cost of Capital, Corporate Finance and the Theory of Investment", 48 AM. REV., 261-297 ( June 1958). Two firms with identical assets and different capital structures will have different costs of debt and equity, but their overall cost of capital will be the same. Failure to abide by the Miller-Modigliani theorem has been a flaw in all the studies that have found cost of capital differences between the United States and Japan, according to Kester and Luehrman, supra note 7.

-170-

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