MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | TASUKU TAKAGAKI
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | TASUKU TAKAGAKI
Regional Vitality in the 21st Century
April 6-10, 2001 — Tokyo, Japan
Mr. Tasuku Takagaki
A serious problem in Japan for the last several years has been on how to reactive the function of financial institutions and stabilize the financial system. An important turning point in activating the financial function came with the "Big Bang", proposed by the Japanese government in 1996, which was to make the Tokyo market free, fair and global similar to New York and London. The Tokyo market had already begun aiming in that direction since the 1970s, but progress was slow and there remained numerous regulations. By proclaiming the Big Bang, the government aspired to create an open international market by the beginning of the 21st century. Looking at progress made during the five years since 1996, we may well be justified in saying that Japan's financial market is now moving at a fair pace in the direction of becoming free, fair, and global. First of all, the fences between the different categories of finance business became lower. For instance, in the banking industry, regulations on the activities of banks' securities subsidiaries were lifted, allowing them to deal in stocks in October 1999, so now they may offer a full line services in securities business. The kinds of products that banks may offer as a means of asset investment have also been widened, and banks were allowed to sell investment trusts indirectly in 1997, and were approved to sell these trusts themselves in 1998. Further, effective this April, banks are now free to sell insurance products over the counter, and may handle insurance related to housing loans, as well as casualty insurance for overseas travel. Laws and rulings concerning financial services are also under review, to secure international conformity. Old regulations which were based on a vertical administrative structure along different categories of finance have been reviewed for amendment into cross-sectional rules. The Sales Act for Financial Products, which became effective this April, is regarded as a first specific step in this direction. Accounting systems are also under considerable review, and in 1998 banks converted to the principle of consolidated settlement of accounts, ahead of all other industries. Furthermore, current value accounting "mark to market" was introduced to the banks in fiscal 2000. Thus, from a system and legal viewpoint, the Tokyo market is being globalized under the principle of free trade and new transparency rules on various financial transactions. This is represented by an increasing number of new entrants into financial business from overseas, as well as in a widening financial area of such participation by overseas institutions. Unfortunately for Japan, however, the timing of such sweeping financial reform coincided with the disposal of a huge amount of bad loans by its financial institutions. The Big Bang was intended to revolutionize the old financial order, and accordingly it had been expected that new competition would spur changes in the metabolism of financial institutions, such as reorganization, new entries, or market exits. As a matter of fact, during the past several years, number of financial institutions were driven into reorganization, bankruptcies or exit from the arena, not only because of the change in the financial system but also by suffering considerable losses due to the disposal of bad loans. Therefore, in order to execute the financial Big Bang smoothly, it also became important to try to stabilize the financial system, for which various governmental measures were taken. Above all, public funding facilities totaling Y60 trillion - equal to more than 10 percent of the Japanese GDP - were made available in 1998 which were expanded at the end of fiscal 2000, up to a total of Y70 trillion. These facilities were used for protection of the depositors in bankrupt banks, and the survival of such financial institutions which was placed under special official control. Public funds were also poured into a number of banks to strengthen their deteriorated capital. The total amount of public funds poured into financial institutions now comes to about Y10 trillion, and it can surely be said that these governmental measures made a great contribution to stabilize the financial system. Unfortunately, however, the damage made by the collapse of the bubble economy has been so large that despite financial institutions' having disposed of a huge amount of non-performing assets in the past few years, the outstanding balance of such assets has not decreased much. According to the Financial Supervisory Agency, the total amount of non-performing assets disposed between the beginning of fiscal 1998 and the end of September 200 reached about Y68 trillion, and yet the balance of risk control assets at the end of September 2000 remains at about Y32 trillion. This is mainly due to the slow recovery of the Japanese economy. The continuing drop in land prices has had a grave effect upon the financial position of debtors, giving rise to new non-performing assets. The weakening stock market prices has had also a deteriorating effect. Thus, the resolution of non-performing-asset problems is one of the biggest current issues facing no only for financial institutions, but also the Japanese economy in general, making it all the more vital that a broad range of measures be taken not only by financial institutions, but also by all business circles and the government. Since the non-performing assets of financial institutions and excessive debts of enterprises compose two sides of the same coin, it is essential that corporate borrowers also take such measures as the restructuring and reconstruction of their businesses, which would have substantial meaning in relation to financial institutions' decisions on writing off non-performing assets. It is also important that the government support the efforts of the private sector in decreasing non-performing assets, by arranging legal infrastructure and tax incentives which would promote activities such as securitization of land and enhancement of loan assets market to accelerate write offs. Strengthening the safety net for the unemployed is also necessary to mitigate the deflationary pressure which accompanies the non-performing assets write-off. In summary, financial reform in Japan has shown remarkable progress, in liberalization of financial markets, creation of fairer transparent markets, and in internationalization, but the non-performing assets problem still remains serious. In efforts to enhance the activity of Japanese financial institutions, therefore, I would say that it is still important to recover their financial strength through further write-offs of non-performing assets but at the same time strengthening their functions to provide satisfactory financial services accounting to the changing needs of various customers through further deregulation. I have often been asked how long it will take to resolve the non-performing assets problem. My honest impression is that we will probably have to endure another two or three years more in efforts to end it, although there will naturally be some difference between individual institutions. Finally, I would like to stress that in the meantime Japanese banks will not fail to positively take action at home or abroad, particularly in Asia. The Japanese banks will willingly assist customers in reorganizing their business structure and in entering new and growing business sectors. Japanese banks will participate in various Asian markets in post Asian currency crisis economic reconstruction, hand-in-hand with Japanese companies with high level of technology and with the Japanese government which are proposing various means of global, regional and bilateral cooperation. Thank you. |
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