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2009 Vol.4
The Japanese Financial System Reexamined: Lessons from the Global Financial Crisis


Large-scale disruptions in the financial market triggered by subprime loan problems in the United States led to financial difficulties or the collapse of major financial institutions in the United States and Europe, and developed into a global financial crisis at a speed that no one could have imagined. Direct losses for Japanese financial institutions caused by financial products linked with U.S. subprime loans were small relative to those for the United States and Europe. However, as is well known, subsequent declines in exports and investment due to a slowdown of the real economy seriously affected the Japanese economy.
New schemes that were based on cutting-edge financial theories, such as asset-based securities and credit default swaps, are blamed as the source of today’s financial crisis. In addition, the vulnerability of the U.S. financial system, which takes full advantage of the functions of the financial and capital markets, is now clear. These facts will inevitably influence discussions on the reform of the Japanese financial system to a nontrivial extent.
The indirect financial system, in which the banks play a central role, is recognized as a major contributing factor to Japan’s postwar economic recovery and as a main characteristic of the Japanese-style economy. However, at the same time, the system is considered outdated now that the country has been a major economy for some time, and large-scale reformsfor strengthening the functions of direct financing have been planned, as seen in Japan’s”Big Bang”financial reform.
Today’s global financial crisis provides an opportunity to reexamine the future of our financial system. A so-called “antiquated”financial system, which is based on trust and a long-lasting relationship with customers, may not produce high growth, but it does have an advantage in its stability and sustainability. All in all, reform plans blindly pursuing American- or European-style systems must, at the least, be modified. (Japanese)