The fertility and ageing crisis, the turbulent 1980s, the post-war crisis - it would seem that the banking sector has literally been through it all and is now in a relatively understandable stasis. But is this really the case?
After the Second World War
The Second World War divided the lives of most countries into before and after. And, as cliché as it may sound, Japan was particularly affected. At the end of the war, the Japanese economy was in tatters: shortages of basic goods, destroyed infrastructure and social tragedy.
The first step towards recovery was the nationalization of the banks. Government control was necessary to keep the banks focused on supporting post-war reconstruction. Most decisions were made by the Allied occupying forces to democratise the country and lead it to independence. Joseph Dodge, an American banker who was appointed economic adviser to the Japanese government, played a special role.
The Dodge Plan
In February 1949, Dodge arrived in Japan to assess the situation and on 7 March he announced his plan, known as the Dodge Line. He proposed the following measures:
Balancing the national budget to reduce inflation;
More efficient taxation;
Winding up the Bank of Reconstruction because of its unprofitable loans;
Reduce government intervention;
Setting an exchange rate of 360 yen to the US dollar to keep the price of Japanese exports low.
Inflation was brought under control, and mass layoffs, recession and the Japanese economic miracle came with it . The exchange rate lasted until 1970, for 20 years one dollar was worth 360 yen, to imagine how insane these figures are for modern times, now one dollar is worth 140 yen. But this exchange rate for exports allowed Japanese goods to enjoy unprecedented demand, stimulating the growth of factories, companies and innovation.
Rising from the ashes and the first central bank
Before the Second World War, Japan had no central bank. In 1942, a new law was passed establishing the Bank of Japan as the country's central financial institution. It played a key role in controlling inflation, managing monetary policy and stabilising the financial system.
The government introduced special loans to facilitate post-war reconstruction. These loans were used to finance infrastructure projects, support industries and provide financial assistance to businesses and individuals affected by the war. Reconstruction efforts focused on rebuilding key industries (steel, coal and machinery), laying the foundation for Japan's future economic recovery.
One innovation was the establishment of agricultural cooperatives to support agriculture. Their main aim was to modernise the industry and make it as efficient as possible. Because of the scarcity of land, Japan being an island state, every square metre had to bring maximum benefit.
All the difficulties, struggles and reforms were followed by a massive liberalization of the economy. This happened in the turbulent 80s.
In order to avoid turning this into an encyclopedia, we have highlighted the main points to give you a general idea of what was going on at the time.
Deregulation and market opening
The Japanese government embarked on a path of financial liberalization to promote competition, foreign investment and economic growth. Deregulation measures were introduced to open up the banking sector and create a market environment. These included easing restrictions on the entry of new banks, the activities of foreign banks, and the diversification of financial services.
Entry of foreign banks
Liberalization efforts in the 1980s opened the door to foreign banks. Previously, their activities had been restricted. International companies brought competition, expertise and financial products.
Securities and Exchange Commission
In 1989, an independent regulator, the Securities and Exchange Control Commission, was established to oversee securities and regulatory compliance.
The 1980s in Japan were characterized by an asset bubble, mainly in real estate and stocks. Speculative investment and excessive lending practices fuelled the rapid rise in asset prices. The bubble finally burst in the early 1990s, with significant economic consequences and problems for the banking system.
Cross-selling and diversification
Liberalization encouraged banks to diversify and cross-sell their services. Banks expanded their product lines beyond traditional lending and deposit-taking to include insurance products, mutual funds and investment advisory services. This diversification was aimed at increasing revenue streams, improving customer relationships and adapting to market dynamics.
Internationalization and global expansion
Liberalization provided opportunities for Japanese banks to expand globally. They established overseas branches and subsidiaries and formed international networks, thus becoming active market players.
A particular modernity
Now that you have a historical perspective on Japanese banking, it's time to move on to the present. Without this background, it would be difficult to understand the uniqueness of the sector and some of its peculiarities. Especially as Japan is known for being meticulous and hierarchical, so we *honour tradition*.
The triumvirate of power
At the heart of Japan's financial ecosystem are three types of banking institution. City banks, often called giants or megabanks, regional banks and trust banks. Each has its own role, goals and customers.
Megabanks, of which there are only three (Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group), offer a full range of financial services, being the guardians of corporate and retail banking, asset management and investment management. They focus on particularly large clients. Not so long ago, it was not customary to change banks (even if a competitor's offer was better, the corporate code of honour did not allow switching banks), but now this situation is slowly changing.
Regional or local banks. Have a symbiotic relationship with communities, contributing to local economic stability. There are only 62 such institutions in the country. Interestingly, they almost always operate within the prefectures in which they are located. They are characterised by a high degree of involvement in the lives of their customers.
Trust banks are responsible for asset management and trust operations, serving individuals, companies and institutions.
Regulatory activities in Japan are handled by the Financial Services Agency and the Bank of Japan, bastions of stability and tradition.
Generations of trust
The core value of all Japanese banks is trust. Loyalty, reliability and a deep understanding of customer needs are the foundations of Japanese banking. Families and businesses often stay with the same bank for generations, creating a timeless alliance. Of course, such close ties stifle innovation and healthy competition.
But that's just one of the features. To become a customer of a bank, you have to be chosen by that bank. You have to go through several interviews and provide as much information as possible, because your relationship may go far beyond a one-off collaboration and last for decades. You may even be asked to bring your business plan for the next few years to the meeting.
For a foreigner, the process of opening a company bank account can take up to 6 months.
The problem loan experience of the 1990s is still affecting Japan's banking sector. The bursting of the bubble left banks with the burden of uncollectible loans, prompting a series of government interventions. Capital injections, the creation of the Resolution and Recovery Corporation (RRC), and tighter lending standards laid the groundwork for resolving the crisis. They also created a new culture of missing persons.
In Japan, there is a phenomenon known as "Jouhatsu" - people deliberately disappear from their own lives for reasons ranging from credit problems to feelings of shame. In rare cases, people return to their former lives, but these are the exceptions. It is shameful for a family to admit to having a Jouhatsu. For this reason, relatives often do not go to the police to look for them, but simply tell friends and neighbours that the person has moved to another town and is doing well.
Economic factors such as debt and financial difficulties can cause people to disappear: feelings of depression due to accumulated debts (most of which are caused by personal loans, credit debts or failed business ventures) and the social stigma of not sharing one's failures create the illusion that one has no choice but to look for a new life.
In Japan, there is a strong emphasis on social expectations, and strong feelings of shame can be associated with failing or disappointing others - in cases of bankruptcy, unemployment, or if one feels that one has harmed one's family.
When someone decides to disappear, they cut off contact with family, friends and colleagues, leaving behind their responsibilities, debts and commitments. People leave their homes, change their names and cut all ties with their previous lives. There are only two escape routes: other parts of Japan and abroad. Some even use the services of "overnight carriers" who provide new documents, addresses, etc.
Disappearance is a grey area of legality, as it is not a crime to leave the country and stop communicating with your family, and debts can be partially covered by the property left behind: cars and houses. You've probably seen cars being auctioned off and videos of abandoned properties being sold at a minimal price. All of this is a result of social pressure and the phenomenon of missing persons in Japan.
Low interest rates
The Bank of Japan's unconventional monetary policy, which included quantitative easing and negative interest rates, was aimed at fighting deflation and stimulating economic growth. However, this has had a direct impact on the banking sector, which has had to look elsewhere for revenue: insurance, mutual funds or related services, including financial advice.
Japanese banks are embracing the digital age with enthusiasm. They are actively using technology to streamline operations and improve the customer experience. Mobile banking apps, online platforms and digital payment services that offer customers contactless convenience have become an integral part of Japanese life.
Fintech innovations (international lending, robo-advisory and blockchain-based solutions) have disrupted traditional paradigms and ushered Japan into a new era of financial service delivery.
However, many experts believe that fintech in the Land of the Rising Sun is stagnating rather than winning the battle against traditional banking. Often, fintech companies and start-ups target foreigners or newcomers who are used to widespread digitalization. The core segment of the industry remains influenced by a conservative approach. In Japanese banking, the question is: how do you build a relationship for the ages if you have never met a customer face to face? And that really hinders the integration of digital services into everyday life.
But there is a younger generation. They are more integrated into the digital world, they look more to the US and Europe, they like to travel and they may bring home the understanding that not all traditions, however valuable they may be, need to be preserved.
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