Has Competition in the Japanese Banking Sector Improved?

The estimation results are shown in Table 5. The benchmark case using CIX is
shown in the left columns. The coefficient of BTRADE is significantly negative at a 5%
level, implying that the emergence of a government bond market promoted competition in
loan markets. In contrast, the coefficients of FREEDEP and SEGDUM are not significant,
suggesting that deregulation of deposit interest rates and the segregation of business lines
did not promote competition in the loan markets.

The business condition, CIX, did not systematically affect the degree of competition.
The coefficient of the Herfindahl index is not significant either. The coefficient of
REGDUM is significantly positive, implying that competition among regional banks is laxer
than that among city banks.

In the right columns, the results of the case where GDP and INFL substitute for CIX
are shown. In this case, the coefficient of INFL is significantly positive at a 1% level,
while that of GDP is insignificant. Thus, competition becomes laxer when the inflation
rate is higher. The other results are the same as for the benchmark case.

In summary, the analysis of this section suggests the following. First, the emergence
of the government bond markets promoted competition in loan markets, but the deregulation
of deposit interest rates and the segregation of financial business lines did not have an
impact on competition. Second, competition among regional banks is laxer than that
among city banks. Third, the business conditions did not systematically affect the degree
of competition except for the inflation rate. Nor did the market structure.

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