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This paper aims to understand Japan’s financial regulatory responses after the global financial crisis and recession. Japan’s post-crisis reactions show two seemingly opposing trends: collaboration with international organizations to strengthen the regulation to maintain financial stability, and regulatory forbearance for the banks with troubled small and medium enterprise [SME] borrowers. The paper evaluates the responses by the Japanese financial regulators in five areas (Basel III, stress tests, over-the-counter [OTC] derivatives regulation, recovery and resolution planning and banking policy for SME lending) and concludes that the effectiveness of the new regulations for financial stability critically depends on the willingness of the regulators to use the new tools.

This report evaluates the post-crisis responses by the Japanese financial authorities in five dimensions (Basel III, stress tests, OTC derivatives regulations, recovery and resolution planning and bank supervision).

The effectiveness of the new regulations for financial stability critically depends on the willingness of the regulators to use the new tools.

The paper is the first attempt to evaluate the financial regulatory trends in Japan after the global financial crisis.

As Japan′s domestic banking industry deregulates it is forced to confront marketing issues which it never had to deal with under the hothouse conditions that prevailed as recently as five years ago. Citibank, the American consumer banking giant, provided the initial stimulus which led large Japanese city banks to become more market responsive to their small depositors in both their products and promotional strategies. Everything from credit cards to electronic delivery systems, from cash machines to direct marketing have been affected by the retail bank strategy launched by Citibank Japan in 1985. In this situation Citibank, a foreign bank which owns a very small niche in the Japanese consumer banking marketplace, has turned out to be the “mouse” that shocked Japan′s giant “elephant” banks into changing their ways to the benefit of Japan′s bank customers. It has nudged these institutions closer to adopting the global marketing trends affecting consumer banking worldwide.

This study aims to examine to what extent the Japanese financial markets are affected by the four periods of unconventional monetary policies (UMP) implemented by the Bank of Japan from 2013 to 2020.

Using the daily 10-year term spread as a proxy for monetary easing policy, this study uses four sub-sample periods from 2013 to 2020 to look into the effectiveness of UMP on the Japanese financial markets.

Our result shows that not all of the Bank of Japan's unconventional monetary policies are equally effective in influencing the Japanese financial markets. In particular, the QQE policy implemented from April 2013 to October 2014 effectively influenced the stock market, banking sector and foreign exchange market. However, the financial market impact of monetary policy is muted during the QQE expansion period. Likewise, the QQE with a negative interest rate policy influences only the banking sector. Finally, the QQE with its yield curve control policy effectively impacts the financial markets.

This research can be expanded by studying the international spillover effect of the Bank of Japan's UMP on the financial markets in Asian countries.

The findings of this study enable investors to understand the causal relationship between the Bank of Japan's UMP and the financial market indicators, thereby helping them to position their portfolio investments. From the policy perspective, the finding is useful to inform the Bank of Japan on which policy is relatively effective in affecting the financial markets. In light of the empirical finding, the Bank of Japan should continue to pursue the QQE YCCP or revert to the initial QQE policy, as the two policies are relatively more effective than the QQE expansion and QQE NIRP in affecting the Japanese financial markets.

The empirical finding highlights the importance of controlling for the impact of different QQE policies in the model. Future research may consider conducting sub-sample analysis to cater to the different QQE policy regimes. This approach provides a clearer picture and valid inferences on the financial market impact of each QQE policy.

This study provides a comprehensive analysis of the impact of Bank of Japan's QQE on the Japanese financial markets. For the market participants, the findings of this study suggest that investors should closely gauge the development of the unconventional monetary policies of the Bank of Japan because the monetary easing policy influences the decision-making process of commercial banks, pension funds, mutual funds, retail investors and other stakeholders in the financial markets. The policy twist will have future ramifications for their loan, investment and retirement fund portfolios.

In the past decade, academic research has been awash with proposals on how Japan should reform, redesign and administer its bank-based financial system (Schinasi & Smith, 1998; Kuratani & Endo, 2000; Hattori, Koyama, & Yonetani, 2001; Rhee, 2001; Baba & Hisada, 2002; Batten & Szilagyi, 2003). Until the late 1980s, this unique regime, involving banks having cross-ownership with industry, was a driving force behind Japan's post-war economic miracle. However, the burst of the asset bubble, and the subsequent prolonged ailing of both the banking sector and the economy as a whole suggests that during the bubble period, the monitoring effectiveness of banks was compromised by a lack of independence from industry and the absence of external discipline. This banking crisis ultimately impaired the corporate sector's fund-raising ability, while trapping excess liquidity in the financial system through a lack of attractive investment choice afforded to risk-averse Japanese investors.

A key problem for Japanese government policy relates to developing alternate forms of financing and investment. This study recommends that further development of Japan’s corporate bond market will provide an alternate investment vehicle, though improved access by foreign market participants including borrowers, investors and investment banks is a necessary precondition to the development of this market. Concerted efforts must be made to ease Japanese investors’ excessive aversion to risk, which limits the development of the extensive high-yield markets that exist in the U.S. and are now developing in Europe.

Despite significant changes to the governing institutional framework and to operational procedures, a number of serious doubts remain concerning the cost‐effectiveness of banking regulation and supervision in Japan. This paper duly highlights these lingering doubts focusing, in particular, on failure resolution policy and the authorities’ handling of the banks’ bad debt problems. The paper concludes by making suggestions as to how the Japanese authorities might improve the situation, to the mutual benefit of Japan and the world economy. (This paper represents a revised and updated version of a presentation given at the London Financial Regulation Group’s Conference on ‘The Institutional Organisation of Banking Supervision’ held at the London School of Economics on 7‐8th December, 2001.)

Daiwa, Sumitomo, and Bank of Estonia experiences display patterns from which lessons emerge for public sector financial managers. Effective fiscal policies, avoidance of conflicts of interest, and attention to the hazards of joint regulation by home- and foreign-owned entities’ regulators are essential to avoid scandals and allegations of public sector corruption. Through international initiatives to align capital requirements, alongside budgetary commitments to regulation, examinations, and monitoring activities, financial managers can develop a more effective infrastructure for global financial markets. This paper details the scandals, documents their social cost, identifies patterns, discusses implications for public policy and budgeting, and proposes action.

Outlines the characteristics of Japanese keiretsu (vertically integrated firms interlinked through industrial groups) and reviews the history of financial keiretsu and associated research. Compares the performance of Japanese and US banks 1989‐2000; and examines Japanese bank profit inefficiency by developing a mathematical model and applying it to 1992‐1999 bank data. Shows a “zig‐zag” pattern of profitability change over the period and concludes that the Japanese banking industry is “barely holding its own in profitability”. Points out the particular importance of this to the real economy in Japan and briefly considers the implications for government policy.

Japanese organizations have been forced to re-evaluate their management systems in light of recent economic and competitive pressures. Much can be learned about the adjustments of the Japanese management mindset, and a more competitive Japan may emerge as a result of successful adaptation. This study makes a longitudinal examination of the dynamic nature of management practices and thinking in the Japanese banking industry. Pressures on key industries in Japan during this time, e.g. the financial sector, provide insight into how adaptable Japanese institutions might be. The study finds important areas of meaningful change, supporting a crossvergence approach.