[talk] How Has the Big Bang Scenario Gone Wrong?

Yoshimasa Nishimura : Professor for the Asia-Pacific studies of the Waseda University

Yoshimasa Nishimura has been a professor for the Graduate school of Asia-Pacific studies of the Waseda University since 1997. His published works include Kinyugyosei no Haiin (Factors behind Financial Administration Failure) and Sekai no Chushin wa Mawarimochi (Rotating Center of the World). He was Director General of Banking Bureau in the Ministry of Finance from 1994 to 1996. He graduated from the Law Department of Tokyo University in 1963.

Paul Sheard : Managing Director, Chief Economist, Lehman Brothers Japan

Paul Sheard is managing director and chief economist at Lehman Brothers Japan. He has held faculty positions at the Australian National University, where he earned his PhD, and Osaka University, and has held visiting positions at Stanford University and the Bank of Japan Institute for Monetary and Economic Studies. His published works include Main Bank Shihonshugi no Kiki (Crisis of Main Bank Capitalism) and Kigyo Mega-Saihen (Mega-reorganization of Companies).

Shoichi Royama : President of Takaoka National College

Shoichi Royama has been president of Takaoka National College since 1998. He now also sits on the Financial Services Agency's Financial System Council and the Central Council for Financial Services Information. His published works include Nihon no Kinyu System (Japan's Financial System) (awarded the Mainichi Shimbun Economist prize) and Kinyu Jiyuka (Financial Liberalization).

In November 1996 when then Prime Minister Hashimoto put forward Japan's version of Big Bang financial deregulation, the financial industry was expected to undergo reorganization and consolidation. Between the Foreign Exchange Control Law revision in 1998 and the partial lift of a freeze on the payoff limited deposit protection in April this year, Japan has implemented various deregulation measures. But Mr. Royama says: "The Big Bang financial deregulation has yet to be successful. This is because the government has been preoccupied with how to set excellent stages and has failed to develop professional market players." This remark represents a dominant view. As the banking system has yet to be stabilized, calls have emerged for postponing next April's full lift of the freeze on the payoff limited deposit protection.

What has led the Big Bang scenario to go wrong? Views on causes and effects are mixed. Mr. Nishimura says: "When the housing loan company problem was solved, Japan was optimistic that the bad loan problem had peaked out and it tackled various problems positively. But Japan has run after two goals and attained neither." As a result, Japan's Big Four banking groups have failed to reform their structurally low profitability. "As far as bank deposits remain fully protected, the government will continue to shoulder risks involving financial assets of households," says Mr. Sheard. This is the reason why Japan has failed to develop free and fair market disciplines.

The most serious problem with the Big Bang deregulation may be "policymakers' failure to work out a clear reform vision that has been required primarily," says Mr. Royama. Financial Services Minister Yanagisawa's private panel on a future vision of the Japanese-style financial system and administration has depicted a vision for a market-based financial system in its recent report, says Mr. Royama. The vision does not include the presence of banks or the concept of banking. This apparently means that unless drastic measures are taken, Japan will remain unable to reinvigorate its financial industry.