The Japanese Foreign Exchange Market

The Japanese Foreign Exchange Market

The Japanese Foreign Exchange Market

The Japanese Foreign Exchange Market


In recent years, Japan's financial market has seen dramatic changes, in particular the explosive growth of currency trading and the increasing international role of the yen. Reszat looks at the market, its idiosyncracies and its future global role.


The Japanese foreign exchange market is a strange thing. It is the second biggest market for foreign exchange worldwide, yet highly regulated; dominated by a few ‘players’, yet highly enigmatic; trading the largest amounts for single transactions, yet strangely antiquated; and restricted to few currency pairs and a small range of financial instruments. The participants in this market are mostly Japanese. Besides a handful of foreign banks in Tokyo it is dominated by Japan’s big commercial or city banks, the long-term credit and trust banks, the big securities houses, insurance companies, trading companies and industrial groups. As this book went into print many of them were only able to participate indirectly.

The Japanese government has announced a full liberalisation of foreign exchange trading for 1998. Will this mean a fundamental change to what is described in the book? In a certain sense, yes. Sooner or later, there will be more direct players, a broader range of financial instruments and stronger market growth. In a certain sense, no. Most of those newly allowed free market access are already heavily engaged in currency trading. Additional reporting requirements and strengthened informal guidance by the authorities will keep the circle of new entrants small. Those who seek to trade widely unhindered by bureaucratic interference whatsoever will continue to turn to places such as London and New York, and increasingly to the emerging financial centres in Asia.

As past experience has demonstrated, in Japan many of the rules that are formally abandoned in the course of financial liberalisation in one way or the other make their way into informal habits of both regulators and regulated, with relations often becoming even more blurred and opaque than before. This book describes the foreign exchange market on the eve of deregulation. The reader is invited to follow the developments and judge the progress reached by market liberalisation in the years to come.

The first chapter gives a short overview of the history of money and financial markets and institutions in Japan. It traces the early beginnings of coin minting in the seventh century, its abandonment and the return to a barter system for the next several hundred years, the development of clan money in later centuries

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