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Japan's Experience in Opening Up its Capital Markets

An example of market liberalization for emerging nations

February 24, 2016

Yasushi Hoshi

Kousei Nakazato

Tamami Ota

Koichi Sugaya

Rie Nakada


◆This report provides a short history of the opening up of Japan’s capital markets and market liberalization during the postwar period. The report was produced with China in mind as progress is made in the liberalization of that country’s capital markets, but with the expected opening up of financial markets in other emerging nations, as well as their streamlining and liberalization progresses, we believe that Japan’s experience in this area can offer many helpful suggestions.

◆Major milestones in the opening up of Japan’s capital markets are as follows: (1) The gradual liberalization of Japan’s capital markets during the 1960s and early 1970s (inward direct investment, internal and external securities investment), (2) Open membership in the Tokyo Stock Exchange touched off by the US-Japan Yen-Dollar Committee during the 1980s, (3) Growth in number of foreign-owned securities companies entering the Japanese market due to passage of the Act Concerning Foreign Securities Companies in 1971, and (4) Establishment of bond issuance market and derivative market in the latter part of the 1980s.

◆The liberalization of capital markets can be thought of as a necessary measure to strengthen the competitiveness of both corporations and capital markets through the promotion of competition. In the case of Japan, the major impetus for opening up its capital markets was pressure from foreign governments. However, since this established the basis for the globalization of the capital markets which would arrive later, it was also beneficial to domestic corporations. Even with the reform of the legal system there are still cases where some foreign companies are unable to enter Japan’s market. Obscure regulations and the existence of customary practices have been indicated as the reason that this occurs. Japan’s experience with this issue suggests that various regulations and customary practices should also be reviewed simultaneously as the entry of foreign companies into domestic markets expands.

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