Introduction to "Japan's Financial Institutions"

Introduction to "Japan's Financial Institutions"

Hello, and welcome to "Understanding Japan's Financial Institutions" by David Luhman.

David, after graduating with special honors in aerospace engineering and journalism from the University of Colorado in Boulder, went to Japan where he spent five years working at a small Japanese trading company, an American maker of mini-super computers, and finally, a Japanese securities company.

During his time in Japan, he became fluent in Japanese and eventually became the president of Tokyo's only Japanese language Toastmasters club.

Now he's back at the University of Colorado where he's earning an MBA in Finance. However, as part of his ongoing effort to help people do business in Japan, he's produced several tapes about doing business there.

In this tape, David discusses Japanese banks, Postal Savings and other governmental agencies, long-term credit banks, trust banks, insurance firms and securities companies. And now, here's David Luhman.

Hi I'm David Luhman and welcome to "Understanding Japan's Financial Institutions." In this tape, I'd like to introduce the major players in Japanese finance and describe some of the changes that are happening in the area of financial deregulation.

Please note that because of deregulation, things are changing rapidly so the rules of the game may have changed by the time you hear this. So please treat what you hear with appropriate caution.

This tape aims to give lots of hard information, and much of the information is in monetary terms. Most of the numbers will be quoted in yen. For example the Japanese city banks have about ¥400 trillion in assets. In dollar terms, using ¥100 to the dollar for simplicity, that's about four trillion dollars that the city banks are holding.

To introduce the major institutions in Japanese finance, I'd like to "go where the money is." When one looks at the holders of financial assets in Japan, you have to think first of the banks.

Japanese banks and similar depository institutions hold the bulk of Japanese financial assets. The major groups are city banks, regional banks, credit associations, agricultural cooperatives and long-term credit banks.

Long-term credit banks serve as a surrogate for the domestic corporate bond market. Japan has only an embryonic corporate bond market due to regulations that prohibited most corporations from issuing corporate bonds until the mid 1980s.

Next in line of financial asset holders is the post office.

Japan's Ministry of Posts and Telecommunications is the world's largest depository institution, with over ¥170 trillion in Postal Savings, and another ¥60 trillion in assets for Postal Insurance.

Next come the securities firms. Securities firms really don't hold that much in assets, but they do oversee trading in the ¥300 trillion stock market. Securities firms, along with the city banks, are also key players in the ¥160 trillion market for Japanese government bonds. This is the world's second largest market for government debt, after the United States.

Japan's life insurers watch over ¥150 trillion in funds. They and the trust banks are largely responsible for overseeing the nation's private pension funds. Despite large individual savings, Japan's pension fund assets are fairly small. Japan has $800 billion in pension assets while America has $4.4 trillion. However, with Japan's population growing older, the need for a buildup in pension assets is obvious.

With this overview of some major participants in Japanese finance, let's look closer at each of them, and the governmental agencies that regulate them.