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Japan’s banks have successfully lobbied the Liberal Democratic Party’s (LDP) key members to bring down regulations that make them less competitive against FinTech. In other countries, this may seem like bad news, but Japan’s social structure relies heavily on large institutions people can count on.
We have reported previously of Japan leading the charge when it comes to cutting edge solutions, both in the real world and in the virtual world of finance and blockchain. However, it seems that the pendulum is starting to swing in another direction. As Japan made it easier for the FinTech and cryptocurrency sector to thrive, it made banks look poor in comparison as they stayed within their old legislative framework.
Seiji Kihara, one of the heads of the LDP’s Policy Research Council, notes this need for change in no uncertain terms:
“We are no longer in an era where we need to straitjacket banks with regulation,”
Furthermore, Kihara is of the opinion that FinTech companies should work in unison with traditional banking institutions:
“You can’t support regional economies only through fintech.”
Accordingly, preparations are already underway to tweak Japan’s banking laws to reflect such views. The changes should come about next year to reduce limits to lenders and their investments into companies outside of the financial sector. No doubt, given that this proposal was released just last week, it will undergo many changes by the time it’s finalized next year.
Nonetheless, the trend seems to be in the direction of facilitating banks’ lending prowess, considering they have been constrained by almost zero interest rates for many years. The wake of the coronavirus gives this proposal an especially keen edge, as banks must now multiply their efforts to support businesses and endangered citizens.
This is a good time to give a quick history tour of Japan’s economic woes. Effectively, since the 90s stock bubble burst, Japan has entered an era of stagnation with each consecutive government at its helm.
In 2018, the public bonds to GDP ratio increased by 149% from 1990. Year upon year, Japan grew more comfortable creating budget deficits.
For America, a global military and economic empire, a budget deficit is a trifling thing, but not so for Japan. Accordingly, since 2013, the Bank of Japan (BoJ) has drastically accelerated its money supply in order to stimulate businesses and overall consumption, by purchasing private and government securities.
From this perspective, we can view Japan’s continued effort to welcome cryptocurrencies and the FinTech sector. The current administration, lead by Shinzo Abe, was particularly accepting of removing restrictions to payments and facilitating open banking that allows users to have all the bank’s functions within a single app. Seeing this trend, banks seek equal removal of barriers.
Thanks to the lobbying efforts of the Japanese Bankers Association, we can expect to see a shift in the way we view banks’ activities in Japan by next year. Outside removing lending restrictions, there is an unexplored space for banks to earn money in advertising. Given the availability of client data, that info can be used to target online banking customers.
Moreover, as in Singapore, banks could invest outside their native niche. Within current Japan’s legislative framework, banks must work with the stake barrier of only 15% investment in non-financial companies.
Lastly, the new proposal will likely end up restricting access to new banking players, by allowing only the established big players to receive banking licenses. Lawson Inc., Sony Corp., and Rakuten Inc. have already been granted the privilege of having banking licenses. In the near future, Big Tech giants such as Google and Facebook may end up receiving the same treatment.
No matter the political system, Japan’s history has always been centralized, with large noble houses maintaining stability. Do you think this is a better model than the laissez-faire free market?