Centre for Financial
& Management Studies (CeFiMS) - University of London
Individual Professional
Courses – IPC
The Japanese Financial System [FM207]
Introduction
This course examines the changing nature of financial institutions, markets,
governance and regulatory regime that make up the current Japanese financial
system. It addresses questions such as: is the system in transition from a bank
based to a capital markets based system? What are the implications for the
corporate sector and households?
Aims & Objectives
When you have completed this course, you will be able to do the following:
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Explain the main features of Japan’s financial system postwar and give a
broad overview of its development to the early twenty-first century
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Situate the Japanese financial system in relation to those of other major
developed economies
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Explain the pressures leading to deregulation in terms of changing
domestic funds flows and international developments
-
Explain the real economy context for the emerging problems of
non-performing loans (NPLs) and financial institutional failure in the 1990s
-
Outline the alleged causes of a banking ‘crisis’ in the latter half of the
1990s and reasons for its continuance
Resources
Students receive a looseleaf binder containing eight ‘course units’; these
texts are carefully structured to provide the main teaching and are equivalent
to traditional course lectures, defining and exploring the main concepts and
issues, locating these within current economics debate and introducing and
linking the further assigned readings. Three assignments (of which two are
counted towards the final course grade) marked by your CeFiMS tutors, and a
specimen examination paper are also included within the student pack, along with
the following:
Textbooks:
Hoshi, Takeo, Kashyap, Anil, Corporate Financing and Governance in Japan –
the Road to the Future, 2004, The MIT Press Ltd., ISBN0262582481.
Gillian Tet, Saving the Sun, 2003, Random House Business Books, London,
ISBN1844136094.
Readings:
A compilation of further readings: recently published articles or seminal
writings which augment and illustrate the main text.
Course Timetable:
This shows the linkage between the various components of the course and
indicates the schedule for reading the texts, watching the revision video,
submitting assignments, etc.
Course Content
Unit 1 The Japanese Financial System in Comparative Perspective
This unit begins by examining the question of why it makes sense to focus on the
financial system of one particular economy, that of Japan. One way of situating
discussion of Japan’s particular financial system is to compare it with those of
other countries and this unit offers some such comparisons. In doing so, the
unit should enable you to reflect on the dimensions of comparison between
financial systems that are most useful. These include overall concepts used to
characterise one financial system and differentiate it from others.
Unit 2 Finance in ‘the Keiretsu Era’
This unit begins with an explanation of the chronological framework relevant to
Japanese finance and continues with a reminder and a further development of the
most notable features ascribed to the Japanese financial system of the
high-growth period. Main banks are then considered as a possible example of
‘relationship banking’ more generally. The unit concludes with consideration of
the costs and benefits of the financial system of that period.
Unit 3 Deregulation and the Bubble Economy
This unit examines the issues arising in the chronological period following
after the high growth period of 1953–73. Deregulation is the first of two major
issues which this unit looks at. The second major issue is the sharp rise, and
subsequent collapse, of asset prices – that is, land and stock prices – in Japan
during the sub-period from 1985 to 1989 for price rises, and 1990 onwards for
price falls. The nature of the price changes and the question of whether they
were entirely speculative or not, has been the subject of debate both inside and
outside Japan, and the unit provides an introduction to that debate.
Unit 4 Banking Crisis in the ‘Lost Decade’
This unit examines the issues arising in the 1990s for the Japanese financial
sector in general and the banking sector more specifically, in the context of
stagnation in the real economy. The unit traces the development of a crisis of
non-performing loans and failing institutions from an incipient crisis involving
smaller and more peripheral institutions, to a deeper crisis by 1997 involving
large institutions at the centre of the financial system. Finally it looks at
the question of whether ‘relationship banking’ and the main bank relationship
could have survived the crisis.
Unit 5 From LTCB to Shinsei Bank – A Case Study
This unit differs from the other units in the course because it enables you to
examine the history of one financial institution over time. This is the history
of the Long Term Credit Bank, one of the major financial institutions to fail
during the late 1990s banking crisis, subsequently nationalised and then bought
from the government by a group of foreign entrepreneurs and re-launched in a new
incarnation as Shinsei Bank. Because it is a narrative and because its sources
include a large number of interviews with individuals concerned, it conveys some
sense of the human aspects of working in a financial institution through the
stable times of the high-growth era through to the severely troubled 1990s.
Unit 6 A New Framework for a More Market-Based System
This unit looks at the far-reaching institutional change in Japan’s financial
regulatory system and policy-making framework for finance, which finally began
in the latter 1990s. Ushered in by a Prime Ministerial declaration in 1996 that
Japan needed to make a decisive reform to a ‘free, fair and global’ financial
system by the year 2001, the reforms have been summarised as Japan’s version of
‘Big Bang’ style thorough financial deregulation. It examines this political
dimension of the reshaping of Japan’s financial bureaucracy and legal framework
for finance. It then considers some of the consequences, for corporate
governance, for resolving the bad loan problems in the banking sector, and for
the response of private sector financial institutions newly able to cross old
business lines in both their structure and activities.
Tuition & Assessment
The course is assessed by:
Each assignment consists of compulsory questions or an essay topic, which should
be answered, in total, in no more than 2500 words. Assignments and examinations
are weighted on a 30/70 basis.
