ARE JAPANESE INTEREST-RATES TOO STABLE

We examine the effects of Japanese financial market liberalization usi ng daily data on Eurocurrency and two Japanese onshore interest rates, the Gensaki and CD rates. Our evidence suggests that Japanese money m arkets are now fully integrated with world markets, but that the degre e of integration depends heavily on the Japanese asset examined. In pa rticular, we find that the Gensaki market is not completely integrated with the Euroyen market. The CD rate, however, is cointegrated with t he Euroyen rate since June 1984, and the Euroyen-CD rate variance rati o is similar to that of dollar-denominated assets after November 1988.