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The Political Economy of Japan's Big Bang

Takatoshi Ito (itointokyo@gmail.com) and Michael Melvin

Working Papers from Department of Economics, W. P. Carey School of Business, Arizona State University

Abstract: A first step in the 'big-bang' deregulation of Japanese financial markets was the deregulation of the foreign exchange market on April1, 1998. This paper provides an overview of the deregulation and then examines the early effects of the foreign exchange market deregulation. In particular we study how the bid-ask spread and conditional volatility in the yen/dollar foreign exchange market changed around the time of the deregulation. Intra-day data are analyzed with the following results: (1) Holding constant the effects of volume and volatility, the deregulation was associated with a convergence of Japanese quoted spreads toward those of other banks. (2) Modeling the persistence in volatility reveals that deregulation lowered conditional volatility.

JEL-codes: F3 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-sea
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