Japanese Financial Institutions Research Articles

Banking on distant shores: a comparison of the development of foreign banks in pre-World War I China and Japan

Abstract This article provides the first in-depth systematic comparison of foreign banking in pre-World War I China and Japan. As the article shows, after their entry into China and Japan, the presence and activities of foreign banks in China and Japan differed markedly, with these banks developing a much more prominent position in China. Making use of sources in German, English, Chinese, and Japanese, this article aims to explain why foreign banks in China and Japan developed so differently before World War I. It does so by first providing an overview of the development of foreign banks in both countries and then discussing their activities and development with regards to Chinese and Japanese financial institutions, trade finance, and public finance. The article shows that it was Japan's emphasis on financial reforms that led to the limited presence of foreign banks in that country.

Performance and Contribution of Japanese and Non-Japanese Financial Institutions in Developing Economies: an Empirical Research in Indonesia

Paper purpose is to analysis the value generated by the Japanese and Non Japanese financial institutions in Indonesia banking from 2013-2018. The paper concentrated on the 16 foreign banks contained of seven affiliates of Japanese banks and nine affiliates of Asian Non-Japanese Banks. The shareholders’ origination will be the independent parameter, and the main financial measurements are the capital structure, credit risk, efficiency, profitability, and firm size, will be the dependent parameter. This paper used non-parametric Mann Whitney Test, besides parametric by Regression of Dummy Variable. The empirical outcomes indicate that there are variances in capital structure, credit risk, efficiency, and firm size. There is no significant variance in profitability ratio. Japanese banks are more noticeable in terms of firm size and well in efficiency ratio and loan to deposit ratio. However, Japanese banks have a higher non-performing credit. The outcomes are significant at a = 1% for capital structure and efficiency ratio.

Applying Throughput Accounting to Japanese Financial Institutions

Applying Throughput Accounting to Japanese Financial Institutions

AML/CFT and new technologies: Challenges in Japan

In the first half of this paper, as a background, the current status and challenges that Japan and Japanese financial institutions are facing to enhance the AML/CFT regime and prepare for the FATF fourth Mutual Evaluation on Japan to be held in 2019, are described. A summary of the latest status report by Japanese Financial Services Agency (JFSA), ‘Current Status of AML/CFT as of August 2018’ is given. The report consists of mainly two parts; the recent measures taken by JFSA and the high level observations of the financial sector in Japan. In the latter half of the paper, a brief explanation is given of how the JFSA and some financial institutions in Japan are considering new technology tools to solve challenges such as the complexity of financial crime compliance, heightened regulatory scrutiny and the increasing costs, including investment costs, for systems and databases that affect the process of following a risk-based approach for anti-money laundering (AML)/countering the financing of terrorism (CFT) in Japan. As an example, efforts and trials by a Japanese bank in using new technology as a solution in action, such as robotic process automation (RPA) and machine learning to make the process of AML/CFT regime more effective and efficient are shown.

Nerlovian revenue inefficiency in a bank production context: Evidence from Shinkin banks

The paper further advances the contemporary methodological and empirical research on bank efficiency. We introduce a bank two-stage network revenue decomposition analysis based on the slack-based directional inefficiency measurement framework, by building upon the approaches of Epure and Lafuente (2015), Fukuyama and Weber (2009, 2010), Fukuyama and Matousek (2017) and Färe, Fukuyama, Grosskopf and Zelenyuk (2015, 2016). We apply the model on the segment of Japanese financial institutions – Shinkin banks. We examine the efficiency performance of Shinkin banks during the period from March 2007 to March 2015. This covers the recent years after the turmoil in the US subprime residential mortgage market which started early 2007. The applied innovative framework is particularly suitable for this type of banks since the financing of their business activities is mainly dependent on the different types of deposits that the proposed model takes into consideration.

Banking Risk and Operating Efficiency Measures in the Era of IT

On the basis that risk drivers are similar to the fundamental reasons for the establishment of e-banking (cost minimization and revenue maximization), this study examines bank risk rating drivers and the degree of e-banking in 124 Japanese financial institutions for two time periods: first period covers six years (2000-2005) of the 21st century (as an example of a less volatile market) and second period is based upon last eight years of the 20th century (as an example of more volatile market). Using a basic risk scoring model, bank risk scores are regressed against operating efficiency measures, namely cost and revenue, which are calculated using stochastic frontier approach. The results confirm that the twenty first century is very advanced in its electronic-banking actuation. There is evidence suggesting that operating costs are lower and revenues are higher when banking services are delivered through electronic means. Therefore, the results support the argument that the riskiness of the banking industry might be reduced if focus is directed to operating efficiency and then to e-banking.

Impact of policy changes on the efficiency and returns-to-scale of Japanese financial institutions: An evaluation

This paper examines the impact of FSA's (Financial Services Agency) recent policy changes on the efficiency and returns-to-scale (RTS) of Japanese financial institutions including banks, securities companies and bank holding companies. Three kinds of efficiency are investigated namely, technical efficiency (TE), pure technical efficiency (PTE) and scale efficiency (SE) using the non-parametric methodology named data envelopment analysis (DEA). The DEA analysis shows a substantial improvement in the overall efficiency of Japanese banks, albeit a significant difference of efficiency scores between the major/city banks and the regional banks. Results are robust to alternative specifications of efficiency and scale changes.

The Analysis of Yields of Regional Financial Institutions against the Benchmark Based on Sharpe Ratios

Owing to persistent deflation and low and stable long-term interest rates, the average loan-to-deposit ratio of Japanese financial institutions has declined, while the average JGB-holding ratio of them has increased gradually over the past decade. To analyze the attitude of regional financial institutions in Japan as risk-takers, firstly, we estimated the benchmark portfolio consists of loans and JGBs which maximize its Sharpe ratio after the collapse of the bubble economy. Secondly, we calculate the logarithmic values of the variances of actual yields on the interest earning assets of them from FY 2001 to FY 2010. Thirdly, we conduct an empirical analysis to know what attributes of them have much effect on the logarithmic values of variances. It means that we analyze what regional financial institutions tried to increase their loans at their own discretion.

The Economic Impact of Herd Behavior in the Japanese Loan Market

This paper investigates whether inefficient herd behavior of Japanese financial institutions in the domestic loan market affected the real economy during the period between 1975 and 1999. By using Japanese loan data, arranged by geographical area, we show that loans stemming from inefficient herd behavior of Japanese financial institutions tended to have destabilizing effects on the GDP and land prices in the following years, while ordinary loans of those financial institutions had a more positive impact. Our results indicate that the deterioration of the real economy in the 1990s may have been attributable partly to the inefficient herd behavior in the Japanese loan market during the period of the economic bubble in the late 1980s.

Japan: Financial Sector Assessment Program - Technical Note on Financial System Spillovers: An Analysis of Potential Channels

This Spillover Report analyses the potential channels of financial system spillovers in Japan that policymakers should keep in mind. The report also highlights some of the potential challenges faced by Japanese financial institutions in managing risks developed owing to overseas exposure. The Executive Board acclaims the importance of an institutional and regulatory framework in managing spillover channels. The report is a guideline as to how Japan developed to win its position in the world.

The Market Evaluations and Strategic Alliances in Survival Waves for Japanese Financial Institutions

The Market Evaluations and Strategic Alliances in Survival Waves for Japanese Financial Institutions

Factors that Prompt Financial Institutions to Close Branches in the Tohoku Region of Japan

This study deals with the behavior of financial institutions that recently restructured their branches or offices. Japanese financial institutions were under strict geographic banking restrictions until the mid 1990s. Although these restrictions are completely repealed now, the number of branches or offices providing financial services for individuals has decreased during this decade in Japan. According to Azegami[1](2005), this phenomenon may be caused by technological progress in finance, population decline in many municipalities, and the recession of the 1990s. Some studies show that the number of branches or offices is related to the population and the number of establishments in business areas. First we reexamined this relationship in the Tohoku Region of Japan consisting of six prefectures; Aomori, Iwate, Miyagi, Akita, Yamagata and Fukushima. The financial institutions here include city banks, regional banks, regional banks II, shinkin banks, credit unions and labor credit associations. The results support our prior studies and show that branches or offices concentrated not only in cities but also in certain small towns play a role as the economic center of the rural region. Next we investigated the relationship between the number of closed branches or offices (from the end of September in 2002 to the end of October in 2006) and several explanatory variables such as the change in population. We presumed that there were more closed branches in areas where the population or the number of establishments had decreased. From the results of our OLS analysis, we determined that the number of closed branches was significantly correlated with the decrease in establishments. Against our predictions, the coefficient of population change was positive, indicating branch closure was more frequent in the urban areas where population was still growing. Moreover, we clarified that institutions merging with others significantly decreased the number of branches. Finally, we found two cases in which one of two branches had been closed in a municipality and another two cases in which the only branch disappeared from a village. Such towns or villages are still few but inhabitants will have to pay extra transportation costs if the only branch in a town or village closes.JFL Classification: G21, R10

Japan's Economy and the Global Financial Crisis

After the prolonged stagnation that followed the post-Bubble economic collapse at the end of the 1980s, from 2002 onwards the Japanese economy exhibited its longest period of economic expansion (albeit gradual) since World War Two. As this expansion came to an end and the economy was on the verge of the downward curve of the economic cycle, it was confronted with the current financial and economic crises, which originated in the USA. Nevertheless, Japanese financial institutions had invested little in sub-prime-related financial products, and with the lessons learned from the issue of bad loans in the 1990s, Japan's financial system enjoyed greater stability than that of any other major nation. However, in the period from the end of 2008 to early 2009, Japan experienced the sharpest economic decline of any major nation. Yet, with the worst period having ended in the spring of 2009, the International Monetary Fund (IMF) has predicted in its October 2009 forecasts that Japan will experience real economic growth of 1.7% in 2010—a higher rate than the USA (with 1.5%) or the Euro Zone (with 0.3%). Despite forecasts of a protraction of excessive US imports as a direct result of excessive US consumption, Japan is being forced to reduce its degree of reliance on exports to the USA and to make major adjustments to its export structure—both in terms of the regions to which it exports and the products that it exports. Japan also faces the task of setting itself on the path to economic growth, using the twin drivers of foreign demand and domestic demand, and this will necessitate the cultivation of domestic demand. Now, the long-term strategy for Japan is to promote the expansion of regional demand in Asia, to couple this regional demand with domestic demand, and to latch on to Asia's economic dynamism.

Collective hyperopia and dualistic natures of corporate social responsibility in Japanese companies

This paper features analyses and critiques two incidents involving questionable corporate social responsibility (CSR) practices in leading Japanese companies. The author discusses the condition of collective hyperopia in which managers try to make sense of and give sense to something external, aloof and general by ignoring the reality of internal, immediate and concrete contexts of their own corporations. The author also draws on a Habermasian concept of the colonization of the lifeworld in order to discuss this condition. The illustrative cases include quality control circles in Toyota Motor Corporation and learning practices in West Japan Railway Company. Even though the original purpose of CSR was to guide businesses in managing their responsibilities to society, this paper argues that a distorted interpretation of CSR induced failures in implementation. In conclusion, the author contrasts the condition of collective hyperopia with collective myopia, in which the cognitions of practitioners are trapped by the commonsense operating within companies or industries, as was disclosed behind the ethical bankruptcy of Japanese financial institutions in 1997–1998.

The Anomalous Stock Market Behavior of Big and Low Book-to-Market Equity Firms in April: New Evidence from Japan

This paper shows that in Japan, big and low book-to-market equity firms experience higher risk-adjusted re- turns in April. We also reveal that volatility in April is significantly lower than in other months. Furthermore, we demon- strate that several trading strategies using this April effect can produce profitable returns, even after considering transac- tion costs. Moreover, additional analysis using the trading volume of financial institutions implies that the abnormally higher returns of big firms and low book-to-market equity firms appear to be derived not from the tax-loss selling effect but mainly from the dressing-up behavior of Japanese financial institutions at the end of the fiscal year.

A Re-Examination of Efficiency and Returns-to-Scale of Japanese Financial Institutions: Evidence from the DEA Approach

A Re-Examination of Efficiency and Returns-to-Scale of Japanese Financial Institutions: Evidence from the DEA Approach

New Dimensions of Financial Liberalization in Japan

This article contrasts the development of Japanese financial institutions over the past 50 years to that of the United States and compares the two countries' household savings behavior. Although reform and liberalization is driving the Japanese financial sector to become more open and more sophisticated, there are powerful reasons for the Japanese system and Japanese asset-holding behavior to remain divergent from that of the United States. One major factor is that income and wealth in Japan are distributed much more evenly than in the United States. Since wealthy households are more sophisticated and better able to accommodate risk, the concentration of wealth in the United States means that, compared to Japan, there are more high income/high wealth households that are willing to take on risk from equity and bond holdings. In Japan, in contrast, there is a much heavier reliance on bank deposits. Even though financial institutions in the two countries are becoming more similar, the persistent differences in income distribution are likely to lead to persistent differences in asset holding and the composition of capital markets in the two countries.

Household and financial institution planning in Japan: Corporate governance by citizens

At present, the Japanese economy is transforming from an industrial to a civil society. This paper discusses the financial system of corporate governance based on citizens’ participation, which enhances the welfare of households, referring to late Professor Kazuo Sato's numerous contributions to the Japanese economy and monetary policy. In order to raise the interests of households, we found it necessary to specifically target the management efficiency of Japanese financial institutions and the method by which profit rates rise due to the unique participation of citizens and households, in other words, the inhabitants of the community. This is seen in the case of bonds as they are related to the environment, filling the needs of the inhabitants of the community; we will focus on the role of the bond market to complement indirect finance.

Global managers and Japanese multinationals: internationalization and management in Japanese financial institutions

The paper examines the internationalization of Japanese banks in the 1980s and 1990s and the experiences of managers within them. These banks underwent a vast expansion in international activities in the 1980s, followed by an equally rapid contraction in the 1990s. Building on a series of interviews conducted in London and Tokyo in the period 1999-2001, the paper examines how this impacted on the careers and expectations of both Japanese and non-Japanese managers. The paper argues that the organizations have been fundamentally changed by these experiences and have become in varying ways ‘transnational social spaces’. The idea of multinationals as transnational social spaces is developed as a general way of linking flows (of people, practices and ideas) inside the firm to broader processes in the development of global political economy.

Japan's Negative Risk Premium in Interest Rates: The Liquidity Trap and the Fall in Bank Lending

Japan's interest rates have been compressed toward zero because of pressure coming through the foreign exchanges. Twenty years of current‐account surpluses have led to a huge buildup of claims – mainly dollars – on foreigners. Because of ongoing fluctuations in the yen/dollar exchange rate, Japanese financial institutions will only willingly hold these dollar claims if the nominal yield on them is substantially higher than on yen assets. In the 1990s to 2002 as US interest rates have come down, portfolio equilibrium has been sustained only when nominal interest rates on yen assets have been forced toward zero. One consequence is the now infamous liquidity trap for Japanese monetary policy. A second consequence is the erosion of the normal profit margins of Japan's commercial banks, leading to a slump in new bank credit and an inability to grow out of the overhang of old bad loans.