The Tokyo Market Needs A Total Overhaul

Now and then, the Western world is swept by a flurry of wishful thinking that Japan is undergoing some sort of fundamental change. In its latest guise, this illusion centers on the securities business. The presidents of two major Japanese securities houses, Nomura and Nikko, have resigned under pressure from the Finance Ministry because they favored big clients and lent money to Japanese gangsters. Will the shock waves also include a turn toward a Western-style standard of openness and fairness for Japan's financial markets?

Yes, it seems probable that Japan's top bureaucrats indeed want a cleaner market where stock manipulation, real estate speculation, insider trading, and underworld ties are reduced. In that sense, the crackdown will benefit ordinary investors.

But it also seems fair to conclude that the reforms will be slow and grudging. Japanese securities firms have covered major clients' losses and consorted with gangsters for decades, with the full knowledge of regulators. The Finance Ministry has finally acted only after competition forced the practice to self-destructive, publicly unacceptable proportions and the brokers kept pumping up the speculative and criminal elements that Finance now wants to crush.

Events that appear to be watersheds to outsiders rarely are so in Japan. When Takako Doi led the Socialists to unprecedented electoral victory two years ago, it supposedly augured a new political era in Japan. Doi recently resigned, the Socialists are in disarray, and the ruling party has high approval ratings. The aftermath of the 1989 Recruit scandal was to be cleaner Japanese politics. Little has changed.

Change in Japan sometimes seems agonizingly slow. But the government is now showing that when it is in the nation's interest to have a cleaner securities market, it can act with forceful speed. Wringing out the stock market cheats is part of the larger issue of overall Japanese financial market reform that includes liberalizing the yen, opening up banking markets, and fostering a more competitive securities industry. The challenge now is to persuade Tokyo's elite bureaucrats that the world's second largest capital market needs to be modernized in all aspects.

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