Japanese Hope Reforms Will Shore Up Tokyo’s Status As A Financial Center

Japan’s government fleshed out details of a plan to redo its heavily regulated financial sector by 2001 to compete better with the money centers of New York and London.

The proposals, trumpeted as the answer to the kinks in the world’s second-largest economy, are aimed at opening up Japan’s clubby, protected financial markets.

The changes should allow businesses and individuals more flexibility in saving, raising and investing money. It could also benefit foreign companies offering newly allowed services, such as mutual funds.

Three government panels on Friday released the proposals, which also would allow banks, brokerages and insurance companies to gradually enter each others’ businesses through subsidiaries.

Prime Minister Ryutaro Hashimoto has bet his political future on pushing through the plan, which he announced last fall as the Japanese version of the “big bang” reforms that opened Britain’s financial system to vigorous competition in 1986.

Many of the changes require legislation, but others will be put into place sooner by the Finance Ministry. The necessary bills will be presented to Parliament early next year.

The plan is considered at least a partial remedy to disenchantment among foreign investors with Tokyo’s overregulated markets and concern that financial business is drifting to more dynamic centers such as Hong Kong and Singapore.

“It’ll stop the rot,” said Pelham Smithers, a strategist at ING Baring Securities.

Pieces of the plan have come out gradually over recent months, but Friday was the first time the government had provided details of the bulk of the program in a single announcement.

In addition to the reports released on the banking, insurance and securities sectors, two other sets of proposals on accounting changes and foreign currency rules have already been disclosed. A measure freeing up foreign currency transactions was passed into law earlier this month.

Like similar deregulation measures implemented earlier in the United States and Britain, the plan is likely to result in a consolidation in the Japanese securities industry.

Friday’s proposed changes include abolishing fixed commissions for securities trading to encourage more competition among brokerages.

They could make available financial services currently not common in Japan, including mutual funds and “wrap” accounts that allow securities transactions as well as banking.

They would also lift taxes on stock and bond trades, allow banks to underwrite corporate bonds, and free insurance companies to set their own premiums. Currently, insurance companies follow guidelines set by an industry council.

The financial industry has been struggling since the collapse of a speculative bubble in land and stock prices earlier in the decade. A series of bank rescues and payoff scandals has deepened fears about the underlying health of Japanese banks and other finance companies.

Particularly damaging have been allegations that the country’s largest securities firm, Nomura, and one of its biggest banks, Dai-Ichi Kangyo Bank, were involved in doing favors for reputed corporate racketeers.

Finance Minister Hiroshi Mitsuzuka has said he intends to stiffen penalties for companies that make deals with “sokaiya” racketeers.