1988 Reports

The political economy of internationalizing the Japanese financial system: The case of the bond market

Rosenbluth, Frances

On November 28 1986, the Ministry of Finance's Securities Exchange Advisory Council proposed a significant relaxation of restrictions on domestic corporate bond issuance. The number of corporations eligible for issuing unsecured straight bonds would triple, the issuing unit of privately placed bonds would quintuple, and firms would be permitted to issue at any time during the month instead of at month's end as formerly stipulated. Moreover, firms with a high enough corporate rating would be allowed to issue unsecured bonds. At first glance, this would appear to be a serious blow to the interests of the banking community: the easier it is for corporations to issue bonds, the less they must depend on banks loans for their external financing. In fact, however, most banks did not fight the change. This chapter will explain why not. Changes in the bond market help to explain the trend towards direct finance in Japan. Secondly, an examination of the process helps to generate more general propositions as to the how and why of financial deregulation. Thirdly, this case study affords a penetrating look at the government-business nexus in Japan.