Abstract
The extensive literature on whether the cost of capital is low in Japan is surveyed in this paper. Along the way, it considers: the leverage of Japanese firms, dividend payout, equity price/earnings ratios, corporate taxation, cross-ownership, land price/rental ratios, speculative bubbles, the household saving rate, international capital mobility, the lower cost of financing investment internally and through main bank relationships, and the move to a more market-oriented system as these relationships break down. The conclusion that emerges from the literature is that the cost of finance was indeed lower in Japan in the 1980s than in the United States, by a variety of measures. But trends of domestic and international liberalization, followed by the events of 1990, have now raised the cost of capital in Japan to the U.S. market level.
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