Japan

Overview

Official name : Japan

Government : Representative democracy

Head of State : Emperor Naruhito

Capital City : Tokyo

Main towns : Tokyo , Yokohama , Osaka , Nagoya , Sapporo , Kyoto

Land area : 377,864 sq km

Population : 126.5m (2018 est.)

Climate : Generally temperate with seasonal winds and typhoons in September-October and, on the Japan Sea side, heavy snow in December- February

Currency : Yen (ISO currency code: JPY )

Exchange rate : USD 1=JPY 105.80 (August 2020)

Measures : Metric system

Language : Japanese

Time : 9 hours ahead of GMT

Regulatory Scheme

The Japanese economy is primarily regulated by the Bank of Japan (BOJ, the central bank; responsible for monetary policy and intervention in foreign-exchange markets); the Council on Economic and Fiscal Policy (government; within Cabinet Office); the Fair Trade Commission (an external agency of the Ministry of Public Management, Home Affairs, Posts & Telecommunications; responsible for enforcing anti-monopoly law); the Financial Services Agency (government; within the Cabinet Office; responsible for financial sector supervision); Japan External Trade Organization (Jetro; originally set up to promote Japanese exports, but now working to promote imports and overseas investment); the Ministry of Economy, Trade and Industry (government; responsible for national industrial strategy); and the Ministry of Finance (government; responsible for fiscal policy). Despite numerous policy bureaus, regulation in Japan remains relatively benign. Diminished control on foreign exchange occurred in 1998 with the amendment of the 1980 Foreign Exchange and Foreign Trade Control Law, which virtually eliminated any such controls. The MoF has generated guidelines which state that; companies and individuals may cross-border lend and borrow, dollars may freely be exchanged by the individual, domestic retail stores may accept dollars for payment, domestic investors may buy and sell foreign securities in overseas accounts, and that no restrictions may apply on foreign-exchange brokerage trading (including derivatives) or over-the-counter retail trading in foreign exchange.

Banking

Banking sector reform has been a policy priority recently as a result of earlier regulatory mishaps. During the Asian financial crisis the Japanese government was forced to adopt a more proactive approach to financial sector regulation. During the crisis the government was forced to pay down 30 trillion yen to help stabilize the banking system and support the Japanese Deposit Insurance Corporation (DIC). During the same period legislation was introduced to create a bank recapitalization fund and also allow the government to close banks it considered financially nonviable. The new legislation led to the nationalization of the Long Term Credit Bank of Japan and the Nippon Credit Bank. Despite these efforts to restore the health of the Japanese banking sector, transparency, asset deterioration and NPLs continue plague the system.

Japan 's commercial banking industry is made up of "city" banks, which primarily serve large corporations, regional banks, which mainly serve small- and medium-sized regional companies, and trust banks, which are typically providers of long-term credit long term financial products. Regional banks are divided into two tiers however there is no longer any regulatory difference between them.

One defining aspect of Japan 's banking sector is the close relations the banks maintain with borrowers through cross-shareholdings and keiretsu (long-term business) relationships. Bankers frequently sit on their borrower's company board and although most companies have multiple banking relationships one bank usually assumes the role of the "main bank" and acts in a capacity similar to a "lead bank" in a syndicated lending situation. Keiretsu is established over many years and although the relationship has many benefits in terms of loan management, the lack of transparency endemic in the system is widely seen as one of the reasons for the inability of the banks to effectively deal with failing companies.

Stock Exchange

In 1949, eight stock exchanges were established in Tokyo , Osaka , Nagoya , Kyoto (merged into Osaka Securities Exchange in March 2001), Kobe (dissolved in October 1967), Hiroshima (merged into Tokyo Stock Exchange in March 2000), Fukuoka , and Niigata (merged with Tokyo Stock Exchange in March 2000). The Sapporo Securities Exchange was established in April 1950. After several mergers and dissolutions Japan now has five stock exchanges located in Tokyo , Osaka , Nagoya , Sapporo , and Fukuoka . The Osaka Securities Exchange (OSE), the Tokyo Stock Exchange (TSE) and the Nagoya Stock Exchange (NSE) were demutualized into stock companies in April 2001, November 2001, and April 2002, respectively, after the modification of the Securities and Exchange Law in 2000. Japan 's stock market has been troubled since the collapse of the asset- price bubble at the beginning of the 1990s. Recent trends indicate that the market is rebounding however at around 14,000 prices are only marginally higher than their peak in 1989. Although corporate governance and transparency is relatively good the market continues feel effects from the collapse in the 90's.

Insurance

The Financial Services Agency (FSA), established in July 2000 is the regulatory body that overseas the Japanese insurance sector. Foreign insurers are able to enter the insurance market without legal hindrance; however, there are non-legal impediments for foreign insurers since keiretsu is popular amongst domestic insurers and nearly assures them share of otherwise captive markets. Additionally, the Japanese Post Office (Kampo) is a competitor to insurance companies because it offers over-the-counter insurance products and is involved in a massive direct-sale pitch. About 60% of Japanese life insurance policies are sold via direct sales. Of late Kampo has been blamed for unfair trade practices because it is not subject to the same supervision or taxation as insurers are. While liberalization on market entry and deregulation has occurred, foreign share in total non-life premiums has lingered at the mid-single digit level for the last decade. Compulsory insurance in Japan includes: CALI , maritime oil pollution liability, and liability for nuclear risks. Japan 's life insurance market is one of the largest in the world. In fiscal 2002, the collective amount of policies in Japan 's life insurance firms was ¥1,675 trillion.