The Evolution of the Japanese Monetary System: Liberalisation and Integration

Abstract

Many changes in the monetary and financial fields in Japan, some self-generated and some foreign-induced, have been observed in recent years. These changes correspond not only to the changes in domestic economic conditions but also to the integration in international financial markets. On the domestic front, it became apparent that the traditional financial system, which actually supported the post-war economic era with its remarkable years of economic growth, was not adapting to the system with a wider spectrum of portfolio. After twice experiencing the oil shocks and adopting a flexible system of exchange rates the Japanese economic goals did not remain the same as before. Thus policies had to change drastically in the 1970s. Nevertheless, the remaining financial regulations and structure adjusted less swiftly to the new economic situation during the same period. Eventually, various innovations took place in the 1970s. On the international front, as the Japanese economy has been more extensively involved in international activities, a number of financial institutions and businesses have become accustomed to much broader opportunities than in the domestic situation which had been bound by the rules and regulations established in conjunction with the relatively closed market framework.

I wish to thank Professors H. Kitamura, A. Boltho, and S. Royama for their helpful suggestions. Kazuhiko Watanabe (Sumitomo Bank) and Hiroshi Tokumaru (Bank of Japan) also provided constructive comments. I am also indebted to Diana L. El-Agraa for her kind editorial services.