Japan’s private equity market is small. In the US, about 14% of every $10 of gross domestic product (GDP) is raised by private equity. However, in Japan that figure is a meagre 0.78%. But as the economy fights deflationary pressures (see article on Japan’s economy) and smaller corporates are starved of financing, private equity still has a role to play in reviving the economy.
After the 1997 Asian financial crisis, Japanese banking regulators stood out because of their efforts to minimise non-performing loans – banks were discouraged from lending to riskier clients, including small and medium-sized enterprises (SMEs) and start-ups. However, such an approach comes at a cost. “This means money supply to this sector has not been enough, which has dampened technological progress in the past 20 years,” says Naoyuki Yoshino, dean of the Asian Development Bank Institute.
