(Provisional Translation)

Structural Reform of the Japanese Financial Market

- Toward the Revival of the Tokyo Market by the Year 2001 -


1. Goal - An International Market Comparable to the NY and London Markets by the Year 2001

(1) A superb financial system constitutes the foundation of a sound economy. In order for the Japanese economy to retain its vigor in the coming "aging society", it is essential to secure the supply of funds to newly rising industries as well as to establish a place for efficient asset management. It is equally important to ensure that Japan provides a smooth supply of funds to the rest of the world, if it is to make a contribution to international society commensurate with its economic strength.
Thus the Japanese financial market, which serves as the artery for the Japanese economy, needs to play its true role of optimal resource distribution, as the markets in NY and London do, so that Japanese individual savings of as much as 1200 trillion yen can be fully utilized.

(2) The financial markets of Europe and the United States have experienced drastic changes in the last ten years and are expecting dynamic development from now on. In Japan, we aim to revitalize the Tokyo market into an international financial market comparable to those of NY and London by the year 2001, five years away from now, while continuing the disposal of bad loans. To this end, it is necessary not only to transform the financial administration into a more transparent one based on the market mechanism, but also to vitalize the Tokyo market through structural reform.

(3) In order to achieve these goals, the government and the ruling party are determined to immediately begin examining the themes outlined below and to implement whatever individual reforms and necessary once a conclusion has been reached, and to complete all these reforms within five years.

2. Implementing Structural Reform: Two Themes ('Reform' and 'Bad Loan Disposal')

In order to revitalize the market in accordance with the aforementioned goals, we need to promote market reforms and bad loan disposal by financial institutions in tandem.

(1) Reform - Three Principles (Free, Fair, Global)

<1> Free (toward a free market where the market mechanism prevails)
---- To liberalize entry, products, prices, etc.

<2> Fair (toward a transparent and credible market)
---- To clarify and enhance transparency of rules and to protect investors' interests

<3> Global (toward an international market ahead of its time)
---- To establish a legal system, accounting system, and supervisory regime consistent with globalization

Note) In line with the aforementioned thorough reforms of financial markets, the tax system relating to financial activities will be reviewed in the context of the entire tax system, keeping in mind the principles of "fair, neutral, and simple" as well as the viewpoint of rationalization of taxation.

(2) No matter how indispensable it may be for the Japanese economy in the 21st century, such a thorough structural reform as above necessarily accompanies various pains. Since we have to execute this reform while swiftly disposing of the non-performing loans of financial institutions, the greatest possible care should be taken concerning the stability of financial system.

[Examples of Concrete Items for Examination]

Reform- Three Principles (Free, Fair, Global)

<1> Free (toward a free market where market mechanism prevails)

* Introduction of new vigor (promotion of entry into banking, securities, and insurance sectors)

* Products and services responsive to a wide range of customer needs (abolition of product restrictions based on separation of long-term and short-term services, expansion of activities in which banks and securities companies can engage)

* Diversified products and prices (liberalization of all kinds of commission)

* Free external transactions (abolition of "foreign exchange bank principle")

* Effective utilization of individual savings of as much as 1200 trillion yen (review of regulation of asset management activities and thorough and substantial disclosure)

<2> Fair (toward a transparent and credible market)

* Provision of information necessary to establish own-risk principle and clarification of rules (thorough and substantial disclosure)

* Active application of punishment for rule violations

<3> Global (toward and international market ahead of its time)

* Preparation of a legal system that corresponds to the development of new financial products such as derivatives and an accounting system consistent with the international standard

* Establishment of a global supervisory cooperation regime whose necessity has been confirmed at the G7 summit and Finance Ministers meeting.

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[Financial System Reform]