Institutional Change Under Neoliberal Pressure: Japanese Regulatory Reforms in Labor and Financial Markets

Abstract

This article examines why the Japanese government eventually introduced greater market mechanisms in the labor and financial markets despite experiencing different political processes of regulatory reforms. The article claims that, while socioeconomic factors such as globalization and economic crises and international factors such as policy diffusion were important catalysts for neoliberal institutional change, the political resources of and power relations between market‐oriented reformers and nonmarket coordination‐oriented anti‐reformers affected regulatory reform processes and decided their characteristics. In the labor market reform, the government of the Liberal Democratic Party (LDP) promoted deregulation by establishing cabinet committees, whose members acted as neoliberal policy entrepreneurs by representing employers’ interests. In the financial regulatory reform, LDP senior members and financial bureaucrats resisted reform as veto players by informally coordinating with the financial sector. However, market‐oriented reforms were eventually introduced by LDP and opposition reformers, whose policy entrepreneurship was crucial to market‐oriented institutional change.