After the domestic financial crisis in the second half of 1997 and in 1998, Japanese corporate saving increased significantly and steadily. Using GDP data and Financial Statements Statistics of Corporations by Industry data, this paper investigates how Japanese firms have used their increased saving and how their capital structures have changed as a result. The initial increase of corporate saving immediately after the domestic financial crisis around from 1998 to 2000 is mostly explained by a supply side factor, a sudden sharp decline of bank lending. However, a major portion of continuing increase in the new millennium will be explained by the reduction of corporate debts by firms' own initiatives. According to the analysis of the data grouped by firm size and the manufacturing/non-manufacturing distinction, the decline of corporate debt is a long-run trend since 1970s with manufacturing firms and large non-manufacturing firms. On the other hand, smaller non-manufacturing firms have decreased their outstanding debt since the late 1990s. As a result, capital structures of Japanese firms today are much more homogenous than they were in 1970s, at least in semi-macro data. It is also found that the ways Japanese firms restructured their businesses are quite different depending on industry. While financial restructuring has been common among non-manufacturing firms, restructuring of labor force has largely happened with manufacturing firms.
