This paper reassesses the results of Japan’s financial deregulation over the last two decades. Japan’s Big Bang sought to transform a highly regulated bank-centered financial system to a transparent, market-centered financial system to revitalize Japan’s economy and aging society. Prior assessments generally view this reform effort as a failure due to Japan’s low economic growth rate.
This paper finds, contrary to conventional wisdom, that government-led deregulatory and administrative reform was largely successful in removing legal and administrative obstacles to the development of a market-centered financial system. However, the persistence of past practices by market participants and strong headwinds such as low macroeconomic growth and poor financial market performance prevented achievement of the Big Bang’s ambitious goals. This illustrates both the limits of what can be accomplished through deregulation of financial markets and the problem inherent in using a results-oriented standard in evaluating Japan’s reform efforts.
Keywords: Big Bang; Financial Deregulation; Financial Reform; Corporate Bond Market; Venture Capital; Financial Center
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.