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Spreading allegations of illicit sokaiya ties at some of Japan's leading financial institutions add to the weight of a formidable and far-reaching agenda to deregulate the country's financial sector and create open competition, writes Sam Jameson.
A growing scandal involving two securities company and a bank in Japan has raised a new challenge to the Japanese government's decision to deregulate the country's financial sector
As a centrepiece of Japanese prime minister Ryutaro Hashimoto's policy, financial deregulation is aimed at removing regulations that are widely blamed for Tokyo's decline as a financial hub. Hashimoto's proposal, to be fully implemented by 2001, calls for the removal of restrictions on financial products and services, and breaking down barriers that segregate commercial banks, trust banking, stockbrokers, insurance companies and other types of institutions.
In doing so, Hashimoto hopes to reverse Tokyo's decline as a financial hub and put it on a par with London and New York. The buzzwords, Hashimoto declared last November when he announced the plan, were: `free, fair and global' business dealings.
But the recent unfolding of scandals at one of Japan's leading commercial banks and two securities companies in connection with alleged illicit ties and payments to a sokaiya extortionist has undermined the validity and effectiveness of the upcoming Big Bang reforms.
A sokaiya is a specialist -- someone who extorts money from companies in exchange for not revealing sensitive information about the firm or ask embarrassing questions at shareholders' meetings. Conversely, sokaiya may offer to intimidate others, including rival sokaiya, into silence.
Prosecutors recently charged four Nomura Securities executives and 11 Daiichi Kangyo Bank (DKB) executives with conspiracy and violating both the Commercial Code, which bans dealing with sokaiya, and the Securities and Exchange Act, which prohibits compensating clients for investment losses.
Just how far Hashimoto will go in implementing his reforms remains uncertain. To date, he has been unable or unwilling even to carry out the relatively insignificant step of lifting limits on foreign ownership of stocks in Japan's two largest telephone operators, Nihon Telegraph and Telephone Co and Kokusai Denshin Denwa. Nor have any reforms been proposed to privatise or break up the government's postal savings system under which post offices throughout the country accept savings deposits. It is the...