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Japan's Financial System: Its Perspective and the Authorities' Roles in Redesigning and Administering System


  • Baba, Naohiko

    (Bank of Japan)

  • Hisada, Takamasa

    (Bank of Japan)


This paper discusses Japan's financial system, in particular its perspective and the authorities' roles in redesigning and administering the system. Japan's financial system, characterized by the "main bank system," depends heavily on banks and differs greatly from the U.S. financial system, which depends heavily on capital markets. We focus on changes in the financial environment such as IT innovation, globalization, and financial deregulation. We argue that these changes influence the functions and roles of banks and capital markets in favor of the latter. Many economists now regard the U.S. system as a model to be emulated. We claim, however, that Japan's system is not likely to shift rapidly toward the U.S. system in the near future, given Japan's unique financial structure including the large share of public finance. The Japanese authorities are expected to seek an optimal balance between capital markets and banks with a view to ensuring the efficient and stable functioning of the nation's overall financial system.

Suggested Citation

  • Baba, Naohiko & Hisada, Takamasa, 2002. "Japan's Financial System: Its Perspective and the Authorities' Roles in Redesigning and Administering System," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(2), pages 43-93, April.
  • Handle: RePEc:ime:imemes:v:20:y:2002:i:2:p:43-93

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    Cited by:

    1. Agarwal, Sumit & Chomsisengphet, Souphala & Liu, Chunlin & Ghon Rhee, S., 2007. "Earnings management behaviors under different economic environments: Evidence from Japanese banks," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 429-443.

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)


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