Dynamic innovations in communications, information and financial
technologies, together with globalization of capital markets,
have freed financial transactions from physical and geographical
constraints, and have dramatically enhanced the functioning of
capital markets. This in turn has resulted in improved investment
opportunities, even at the household level, and in greater flow
of funds to emerging industries, thus playing an important role
in helping industrial economies regain their dynamism.
With a rapid aging of the population, Japan needs to raise the
return on the Y1200 trillion of household financial assets. Ensuring
an adequate source of capital for the next generation of key industries
is an important goal. As an economy that generates a significant
portion of global savings, Japan also needs to meet its international
responsibility by ensuring that these savings are channeled effectively
to the rest of the world, including to developing countries.
The financial system needs to function efficiently if these objectives
are to be met. The role of the securities market is particularly
important, as the market is uniquely suited for risk-taking and
risk-diversification.
Globally, there have been large reforms in securities markets
around the world. By contrast, in Japan, in the boom-and-bust
of the financial bubble during the past decade, innovation in
the securities market had slowed. As a result, the market is not
living up to its full potential, so that the possible hollowing
out of the Japanese market is a source of concern. There is an
urgent need to make the Japanese market more attractive and competitive
internationally, to reconstruct a dynamic capital market, and
thereby to allow investors and issuers to enjoy the full benefits
of an advanced capital market.
Without a radical and comprehensive reform of the securities market,
the Japanese securities market has little prospect of becoming
an attractive, international market, and will ultimately put Japan's
economic growth and a wider international acceptance of the yen
at risk.
The comprehensive revision of the Foreign Exchange Law enacted in May, provides Japanese investors and firms the freedom of access to markets worldwide, and is a front-runner in the overall reform of the financial system. With this foreign exchange liberalization, Japanese markets will be truly integrated into the global market. This in mind, the reform of the securities market aims to place the Japanese market on par with major financial markets worldwide, by ensuring that the Japanese market can freely generate and employ innovations in financial instruments and transactions. The reform also needs to make every effort to make the market as fair and transparent as possible, so that domestic retail investors and foreign users of the Japanese market may approach the market with confidence. Furthermore, the reform must also increase the freedom of Japanese intermediaries, so that they may offer better services and
compete effectively in the global marketplace.