While prior studies have intensively examined debt covenants in the US firms, it has been argued that the use of covenants varies among countries. Focusing on Japan, this study uses a large-size hand collected sample to explore how and whether debt covenants are used in a bank-oriented country. Specifically, we predict that, in Japanese loan markets, covenants are used as a substitute and/or complementary to the traditional main bank system in terms of monitoring mechanism. Consistent with this prediction, we find that debt covenants are more likely used for firms with lower main bank dependence. We also document that the use of covenants itself does not always lead to better monitoring outcome. Rather, a combination of covenants and main bank monitoring results in conservative earnings that is of benefits of creditors. Overall, our study contributes to literature by providing new insight onto the role, structures, and determinants of debt covenants outside the US.