Europacifica Consulting has been assigned a case study by APEC for its 2016 review of structural reform in the services sector, on the financial services sector in Japan. The objective of the case studies was to elaborate lessons learned from both policy successes and disappointments during historical episodes of structural reform, and we have chosen to focus on late Koizumi-era reforms in 2006. We have compiled interim results into a presentation, given to the public today at University of Melbourne’s Asia Law Centre.
Abstract: Financial Services Sector Reform in Japan
2006 was a watershed year for financial and economic reform in Japan. The then Prime Minister’s reformist agenda included reforms to the national budget system, special public corporations, medical insurance, national pension systems, and postal savings and insurance system. 2006 saw the implementation of the comprehensive New Companies Law, as well as the Financial Instruments and Exchange Law (FIEL), which represented large-scale revision of Japan’s Securities and Exchange Law. The privatization of Japan Post was legislated the same year, a political coup for PM Koizumi.
The outcome of Koizumi’s reforms receives a poor popular reception, given Japan’s subsequent lapse into deflationary stagnation. PM Koizumi stepped down in 2006, upon which postal privatisation was diluted, subsequently shelved under the DPJ administration. The New Companies Act was criticised for its insufficiency in improving Japanese corporate governance. Meanwhile, the implementation of FIEL (Japan’s answer to Sarbanes-Oxley in the US), while stringent its objectives of protecting investors from malfeasance (and thus increasing confidence in the financial sector), is pilloried for having unintentionally slowed investment.
Nonetheless, in retrospect we might have more to learn from Koizumi’s 2006 financial reforms, despite its generally negative review. 2006 reforms provided a springboard for subsequent reform in the sector, including PM Abe’s agenda today. Analysis of the 2006 reforms, their strengths and weaknesses, combined with empirical analysis of drivers of total factor productivity in the services sector gives us clues on the ingredients for successful reforms going forward.