Liberalization of Japan's Financial Markets Is the Result of Internal and Foreign Forces
The direction and future of Japan's financial liberalization and further currency internationalization became clearer recently with publication of two important reports.
One, by the Working Committee of the Joint Japan-U.S. Ad Hoc Group on Yen/Dollar Exchange Rate, Financial and Capital Market Issue, was submitted to the Japanese Financial Minister and U.S. Secretary of the Treasury toward the end of May. The other, entitled "The Present Situation and the Outlook Regarding the Financial Liberalization and the Internationalization of the Yen,' was issued by the Japanese Ministry of Finance.
These provide valuable definition of these important issues for all concerned. For over six months since November 1983, U.S. and Japanese members of the Joint Ad Hoc Group discussed a wide range of financial and monetary issues related to both countries, including the yen-dollar exchange rate.
I strongly believe numerous forces have been building up in Japan which make necessary liberalization of financial and capital markets. It is also my opinion that the various measures agreed upon by the Ad Hoc Group will certainly help accelerate the pace of liberalization.
On many past occasions, I have said the most desirable approach to financial liberalization is for Japan's Ministry of Finance to first indicate general direction and then smoothly implement various steps by gaining consensus of financial institutions concerned. I therefore welcomed the Finance Ministry's recent report.
As we look back to the six weeks of discussion by the Ad Hoc Group, it always seemed to be the U.S. side that first clarified its position on various issues while the Japanese side followed up by way of reacting to the matters raised. At the outset, it appeared yen-dollar exchange rates were the U.S. priority but emphasis shifted later to foreign institutions' entry into Japan's money and capital markets and the expansion of Euroyen markets.
U.S. Demands Contested
Admittedly, opinions have been expressed that U.S. demands were an interference in Japan's domestic money and capital market affairs and that it was improper to promote internationalization of the yen in an artificial manner.
Nonetheless, current general sentiment in Japan is favorably disposed toward accepting the Joint Group plan. This is primarily because circumstances calling for early financial liberalization existed in Japan prior to pressure exerted by the U.S. side.
First, because of a large volume of government bonds floated in the market, the high yielding mutual funds, investing primarily in medium-term government bonds have been showing a rapid growth in volume. If the interest rates on bank deposits remain regulated, there would be a further degree of disintermediation. …