Monetary and Economic Studies Vol.20, No.2 / April 2002

Japan's Financial System: Its Perspective and the Authorities' Roles in Redesigning and Administering the System

Naohiko Baba, Takamasa Hisada

This paper discusses Japan’s financial system, in particular its perspective and the authorities’ roles in redesigning and administering the system. Japan’s financial system, characterized by the “main bank system,” depends heavily on banks and differs greatly from the U.S. financial system, which depends heavily on capital markets. We focus on changes in the financial environment such as IT innovation, globalization, and financial deregulation. We argue that these changes influence the functions and roles of banks and capital markets in favor of the latter. Many economists now regard the U.S. system as a model to be emulated. We claim, however, that Japan’s system is not likely to shift rapidly toward the U.S. system in the near future, given Japan’s unique financial structure including the large share of public finance. The Japanese authorities are expected to seek an optimal balance between capital markets and banks with a view to ensuring the efficient and stable functioning of the nation’s overall financial system.

Keywords: Japan's financial system; Main bank system; IT innovation; Financial deregulation; Bank supervision; Public finance; Corporate governance

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.

Copyright © 2002 Bank of Japan All Rights Reserved.

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