Vested interests could hinder Japan's move to open markets
Wednesday 13 November 1996
Shunsaku Hashimoto, chairman of the Federation of Bankers' Associations of Japan, yesterday praised the government for its "plans to re-invigorate the financial market as a venue that can match New York and London". Opinion in Tokyo, however, was divided over whether political instability will consign the latest reform initiative to the sizeable scrap-heap of disappointed promises.
Details of the plan are vague, although finance ministry officials are presenting it as the most wide-reaching and detailed ever seen in Japan. Under the slogan "Free, Fair, Global", it is intended to cut through the regulatory red tape which is increasingly causing the Tokyo markets to lag behind international competition.
If fully realised it will open up competition across a range of financial sectors, providing lucrative opportunities for smaller Japanese companies, as well as foreigners, hitherto excluded by the iron grip of the ministry of finance. But it also raises the spectre of bankruptcies, especially for smaller firms, shakily emerging from a painful recession and banking crisis.
Prominent among the proposals are plans to increase competition by allowing banks, brokerage houses and insurance companies the right to participate in one another's markets. Government regulation of insurance premiums and stockbroking commissions will also be reduced, and greater access will be granted to Japan's vast, and hitherto closely regulated, pension market. Distinctions between commercial banks, long-term credit banks and trust banks will also be removed, enabling commercial banks to issue debentures and provide trust services, which at present are virtually unavailable to ordinary Japanese investors.
The outline for the plan speaks of legal reforms and changes in the tax and accounting regulations which would increase financial transparency and bring them closer to international standards. For instance, loopholes which make it difficult to calculate the precise assets of big corporations will be eliminated. The first step, an abolition of the rule which restricts foreign exchange transactions to authorised commercial banks, is set to be submitted to parliament in the new year.
The timetable for the rest of the programme is vague, and virtually all of the proposals have been fruitlessly floated before by various government panels and deregulatory bodies. But the high-profile nature of the announcement, endorsed by the Prime Minister, Ryutaro Hashimoto, less than a week after his formal re-election, will make it harder for politicians and bureaucrats to wriggle out of implementing them.
The biggest obstacle may be political. Mr Hashimoto's government is 12 seats short of a full majority and vested interests will ensure each new bill has a rough passage. Particular resistance can be expected from the many Japanese MPs who began their careers in the bureaucracy, and from big businesses which benefit from the current closed markets. "No matter how indispensable it may be for the Japanese economy in the 21st Century," concedes the draft plan, "such a thorough structural reform necessarily brings various pains."
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