June 5 (Bloomberg) -- Japan needs to revise rules that prevent banks and brokerages from combining and improve the transparency of regulations to raise its standing as an international financial center, a key government panel said.

An exchange also should be created that can offer a wider range of products, including stocks, derivatives and commodities, the 11-member Council on Economic and Fiscal Policy, chaired by Prime Minister Shinzo Abe, said last night.

Competition from regional financial centers such as Hong Kong and Singapore is heating up as governments try to garner a bigger share of Asia's economic growth. Tokyo ranked as the ninth most-attractive financial hub in a March study by the city of London, trailing Hong Kong, Singapore and Sydney.

``Now may be the last chance for Japan to catch up,'' said Naoko Nemoto, a managing director at Standard & Poor's in Tokyo. ``Hong Kong, Singapore and cities in China have gained status as financial centers in the past decade, while Japan was too busy tackling bad loans that had piled up at banks.''

Japan needs to lower barriers to global financial transactions, trade and tourism to stimulate economic growth, according to the council, a body of top ministers and academics that directs structural reform and fiscal policy.

The nation's banks are restricted from sharing information including customer data with their brokerage affiliates, which limits benefits from expanding securities operations. Japanese banks favor lowering barriers with securities firms to the levels in the U.S. or Europe, Masayuki Oku, head of the Japanese Bankers Association, said in an April interview.

Regulatory Burdens

Securities laws also prohibit sharing compliance executives between affiliates, which creates burdens for overseas companies. ``Some foreign firms have been careful about coming to Japan because of this restriction,'' Nemoto said.

Japan wants to attract more international hedge funds, banks and other financial institutions, partly by making its regulations more transparent.

``Japan needs to make rules less discretionary and clearer to attract more firms from overseas,'' said Shinsuke Amiya, Merrill Lynch's former head of investment banking in Japan, who now runs Tokyo-based financial firm NIS Group Co.

Japanese regulations list ``things that are allowed rather than what banks cannot do,'' the opposite of the U.S., he said. ``A bank must seek an approval each time it plans to sell a new product.''

Copying London

The country also plans to replicate London's Canary Wharf in Tokyo, Yuji Yamamoto, minister for the Financial Services Agency, said last month. The zone would be in the Nihonbashi district where the Bank of Japan and the Tokyo Stock Exchange are located, he said. More high-rise office buildings would be constructed there and telecommunications and transportation would be improved, he said.

Other financial centers are also looking at ways to lure more companies and trading. Hong Kong Exchanges & Clearing Ltd., manager of Asia's third-biggest stock market, is selecting advisers to study the creation of a commodities derivatives market. It is also pressing ahead with efforts to seek listings from countries other than China, Chairman Ronald Arculli said.

A study released in January by Hong Kong's government recommended the exchange establish a commodities futures market that can cater to China, one of the world's largest consumers and suppliers of precious metals and other raw materials.

To contact the reporter on this story: Mariko Yasu in Tokyo at at myasu@bloomberg.net.

Last Updated: June 5, 2007 01:36 EDT