Japan's so-called Big Bang financial reforms officially begin this month. They are designed to boost the value of the Japanese stock market, confirming Tokyo's position as one of the top three global financial centres. Once the largest in the world, Tokyo is now less than half the size of New York. The package of measures is set to be the single biggest shake-up in international finance in recent decades. The BBC's Max Foster reports:

Cumbersome regulations for traders are being scrapped

Although the Japanese have savings of around $9,000bn, a third of the world total, most of them are held in low interest bank and post office accounts.

The population is ageing rapidly and the government is worried there will not be enough money in the economy to support future pensioners.

Its solution is to push through a series of radical reforms designed to change the way money flows around the economy. It wants to recycle more savings into the stock market.

That, hopes the government, will bring Tokyo back in line with the trading levels of London and New York, pulling the value of the recycled savings up with it. The reforms are called the Big Bang after a similar exercise in Britain 12 years ago.

Stock Market technology will be upgraded

A host of regulations that make Tokyo such an expensive and cumbersome market to work in are being scrapped, to tempt more investors into securities. Stock market technology will also be improved.

The Japanese Big Bang is much bigger than the British version though, because it does not just cover the stock market.

Foreign exchange controls are also being lifted this week, and the central bank has been made independent. In the summer, the insurance industry will also be deregulated.

Traders may go through a painful transition period

The government hopes to make Tokyo a market that in its words is free, fair and global. But some economists fear that the Big Bang will open the floodgates to foreign competition which could not come at a worse time.

Japan is sinking into its deepest recession for 25 years and its financial institutions are at their weakest, burdened with bad debt and with their images in tatters after a series of scandals. One leading researcher predicts that half the top 19 Japanese banks will fail and many more smaller ones will fall by the wayside.

While few doubt that the Big Bang will make the Japanese more competitive in the long-run, it is clear there will be a painful period of transition first.
 

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