I. Status Quo and Problems in Japanese Securities Market
1. The question of what form the Japanese securities market ought
to take has now risen to the fore. The market has developed along
with the Japanese economy, and it has played an important role
in the economy. As a result of changes in economic and social
environment, however, people expect more of the securities market.
Can the market answer such expectations? The securities market
as a whole is required to execute reforms over the medium term
looking to the 21st century, rather than focusing upon the vitalization
of present market transactions.
2. The Japanese financial and capital market has emphasized the
role of distributing funds effectively and in concentration to
key industries. The market, however, has entered a stage where
the emphasis should be changed. As the percentage of elderly
persons within the general population increases, individual financial
assets now total as much as 1,200 trillion yen. Financial and
capital markets now have to work to ensure that assets are invested
more effectively. At the same time, the maturation of the economy
has made it more important to provide funds to various new industries
comprising positive risk burden in funding. In addition, because
of the huge accumulation of financial assets in Japan, the Japanese
market now has to play a greater role in the effective distribution
of funds from a global point of view.
3. Such a role cannot be fulfilled under the traditional Japanese
system of indirect financing based upon bank loans and deposits.
It is assumed that the securities market, which could effectively
perform the functions of risk management and distribution, could
satisfy financial intermediary needs of the new era. Today's
Japanese securities market, however, is far from such a desirable
condition. In other words, deposits and savings continue to account
for far larger share of financial assets than that of the vastly
smaller share accounted for by individuals investors. Borrowing
continues to play an important role in business funding. In addition,
participation by overseas investors and companies in the Japanese
market is restricted.
4. The major causes of such problems do not lie in the history
of economic development or Japanese culture. Instead, these problems
may be attributed to the framework of the securities market and
the attitudes of the people who work there. There is criticism
that both the legal and the administrative frameworks for regulating
the securities market have served as to hinder market professionals
from exercising originality and assuming responsibility. It has
also been pointed out that the accounting, taxation, and legal
systems that constitute the market infrastructure, unlike those
in other major financial centers, have not been designed to promote
product development or transactions. Those who comprise the market
have behaved themselves in accordance with economic rationality
under the framework of preventive regulations and the existing
system infrastructure, which has made the market what it is today.
The following problems have surfaced, however, due to changes
in environment of the Japanese securities market.
(1) As for securities exchanges and the over-the-counter market, it may be necessary to reduce the various transaction costs to be paid by users and make transaction services more attractive and convenient for users in accordance with their changing needs.
(2) Intermediaries (securities companies and asset management companies) may not have made sufficient efforts to provide unique and original services. They may be able to encourage investors to utilize the securities market more actively, by marketing attitudes that attach more importance to to the views of investors.
(3) May individual investors have partially pursued short-term capital gains or not fully understood the principle of self-responsibility? It may be necessary to make the principle of self-responsibility generally known. It may also be necessary to increase the investor base by transforming the securities market into something that the average person can more easily understand and by creating a climate that allows long-term stock holding.
(4) The ability of institutional investors and fund managers to manage assets is now being called into question. Futhermore, the attitudes of these institutional investors and fund managers which lead them to follow the lead of others may have impeded the offering of a variety of unique products. This may be one of the factors hindering smooth price formation in the market.
(5) Issuing companies may be required to adopt an attitude towards marketing that attaches greater importance to stockholders and investors. It is important that the issuing of security faithfully reflect the market conditions, performance of the company and its rating. Issuing companies may need to consider these matters more fully.
Mutual holding of stocks by companies and banks based on
non-financial motives is economically reasonable in the traditional
framework. Such activities, however, affect stock price formation,
creating doubts as to the market value of stocks as financial
assets and corporate governance. This, as a consequence, may
have negatively affected the willingness of real investors, including
individuals, to invest in stocks.
5. Globalization of the economy and finance and the advances in
telecommunications and information technologies have freed capital
transactions from geographical and physical restrictions, creating
new possibilities. At the same time, such changes have intensified
international competition in pursuit of lower costs and higher
added value. International competition between markets makes
it possible for the need for the procurement and management of
funds to be satisfied in overseas markets. The Japanese securities
market, however, must not be deindustrialized because it is difficult
for individuals and small companies to obtain direct access to
overseas markets, and the deindustrialization of the industry
might impede the availability of information on finance and securities
transactions and lead to unemployment in the financial and securities
industries. To make the market a convenient, attractive, and
competitive one that satisfies international standards will contribute
to effective investment of abundant Japanese financial assets
in the Japanese market and the development and growth of new industries.
6. Problems with the Japanese securities market arise from a wide
variety of causes. To allow the future securities market to meet
the needs of the people in the 21st century, it will be necessary
to introduce drastic and comprehensive reforms. Such reforms
should start with the transformation of the traditional framework
of regulations, including administration, which should be followed
by changes in the awareness and behavior of market users, intermediaries
7. The securities market is a common asset of the people. The
climate which makes people look askance upon stockholders conflicts
with the essence of the securities market. This view of the securities
market and the problems surrounding it make it difficult to tell
what are the causes and what are the results of problems. In
any case, it is desirable that everyone concerned should endeavor
to cultivate the securities market as an important national asset.
Accordingly, efforts should be made in terms of reforms to revitalize
the market and to make it easier for the average person to utilize.
At the same time, care must be taken not to harm benefits to
not only direct users but also people at large by unfair practices
or conflicts of interest. We must always remain aware that it
is the nation as a whole which is the final beneficiary of the