Japanese market status-quo, recent market development and related issues for the
future after the crisis
8th of December, 2011
The open conference in ABMF 6
Recent Global Financial Crisis and Asian Bond Market Development Item 1
"Challenges and issues in opening up bond markets after the recent global financial crisis"
1. How Significant was
the 2007-2008 Financial Crisis?
2
Write downs and Capital Raised by Major Banks since 3Q2007 (USD billion, as of 7 July 2009, Starting from July 2007)
200 400 600 800 1000 1200 1400
1600 1468.5
974.7
454.9
39.0 1265.3
738.4
443.1
83.8
Asset Writedowns Capital Raised
Enhancing supervisory and
regulatory systems alone is not
sufficient enough
September 1, 2009
Professor Tatsuo Uemura, School of Law, Waseda University
http://www.globalcoe-waseda-law-
commerce.org/purpose/ProfUemuraStatement_ENG.pdf
4
• Financial and capital markets conducive to the formation of economic bubbles, in addition to widespread trading in inappropriate financial
products, improper trading and unfair trading in a global economy, have an enormous negative
impact throughout the world.
• This negative impact causes serious damage to economies and to the lives of citizens, in
particular in developing countries, which are in the majority of cases passive victims of this
• In view of the scale of the impact of financial and capital markets on the world, the Western nations which have traditionally exercised
leadership in this area must recognize the
profound responsibility that they bear for the establishment of systems to maintain financial and capital market discipline.
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• When we review discussion in the U.S. and Europe regarding the financial crisis, we find that the strengthening of supervisory and regulatory systems has been discussed in a variety of forms. Discussion should be further extended in this direction.
• However, there seems to be a paucity of voices discussing, in a self-reflective and critical manner, the necessary future direction for systems of corporate and capital/financial market law which have to date provided the conditions for constant excesses.
• Fundamental laws have tended to promote
loose transactions. If this is treated as simply a domestic issue and the situation remains
unchanged, merely enhancing supervisory systems will undoubtedly be of limited
effectiveness. If the reformed supervisory systems do not function effectively, harmful effects will be diffused and once again cause damage on a global scale.
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2. Japanese Bond Market
status-quo
Japanese Bond Market status-quo
Source: JSDA (Japan Securities Dealers Association
Issuance of Bonds
10 (trillion ¥)
More than 90%
0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0
FY1990 FY2000 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
Non-resident Corporate etc. Bank Debenture Other Public JGB (TB) JGB
FY1990 FY2000 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
JGB 18.3 58.8 100.1 101.8 96.4 93.2 112.4 121.1
JGB (TB) 20.5 42.8 41.9 36.8 22.8 21.0 32.9 30.0
Other Public 2.9 7.5 17.9 14.6 15.0 15.3 16.8 16.7
Bank Debenture 46.9 21.0 8.8 6.7 6.5 5.5 4.2 3.8
Corporate etc. 3.4 8.3 7.4 7.5 9.6 9.9 10.6 10.1
Non-resident 1.4 2.6 1.6 0.8 2.6 2.1 1.2 1.9
Total 93.2 141.0 177.6 168.1 152.9 147.0 178.1 183.7
Summary
• JGB and other public bonds are showing large proportion, but・・・
• Sovereign (non-resident) bonds issuance are gradually increasing
• Corporate bond issuance are steady
Japanese Bond Market status-quo
1. Outstanding of Bonds
Source: JSDA 12
0.0 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 900.0
FY1990 FY2000 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
Non-resident Corporate etc. Bank Debenture Other Public JGB (TB) JGB (trillion ¥)
FY1990 FY2000 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
JGB 158.1 239.6 455.7 488.8 527.5 558.0 598.2 646.8
JGB (TB) 8.2 29.6 29.9 24.8 22.8 21.0 32.9 30.0
Other Public 27.1 42.9 84.5 89.2 94.4 99.1 105.8 111.5
Bank Debenture 67.7 48.2 25.5 22.9 22.0 20.9 18.9 16.7
Corporate etc. 26.0 61.9 54.5 54.3 56.7 58.1 61.4 64.0
Non-resident 6.0 8.2 6.7 6.5 8.1 9.3 9.0 9.5
Total 293.1 430.5 656.9 686.6 731.5 766.4 826.3 878.5
Around 90%
Japanese Bond Market status-quo
3. Corporate (Non-public) sector Bonds Outstanding 2. Proportion of Each Category of Bonds Outstanding
(trillion ¥) 0% 20% 40% 60% 80% 100%
FY1990 FY2000 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
Non-resident Corporate etc. Bank Debenture Other Public JGB (TB) JGB
60.0 80.0 100.0 120.0
Non-resident Corporate etc.
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Jap an e se B o n d M ar ke t s ta tu s- q u o
14 0 500 1000 1500 2000 2500 3000 3500
2000.01 2000.05 2000.09 2001.01 2001.05 2001.09 2002.01 2002.05 2002.09 2003.01 2003.05 2003.09 2004.01 2004.05 2004.09 2005.01 2005.05 2005.09 2006.01 2006.05 2006.09 2007.01 2007.05 2007.09 2008.01 2008.05 2008.09 2009.01 2009.05 2009.09 2010.01 2010.05 2010.09 2011.01 2011.05
Monthly Issuance of Corporate (Non-public) sector Bonds (January 2000– August 2011)
Non-resident
Corporate etc.
Bank Debentures (billion ¥)
Source: JSDA
Japanese Bond Market status-quo
Trading Volume of Bonds
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000
FY1990 FY2000 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
Non-resident Corporate etc. Other Public JGB (TB) JGB
FY1990 FY2000 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
JGB 1,961 1,389 5,122 7,555 9,695 7,566 4,756 5,126
JGB (TB) 1,195 2,583 1,779 1,863 2,628 2,795 3,057 2,495
(trillion ¥)
More than
3. Background Information
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308.5
286.0 269.3 253.1
234.7
218.0 211.1 212.5 207.8 216.3 208.9 199.2 197.2 188.2
183.2 180.8
176.5 176.5
175.1 178.3 182.1 185.7 192.8 194.6 195.6
198.3
100.0 200.0 300.0 400.0 500.0 600.0
236.5 230.6 237.2 242.1 248.4 252.3 255.7 252.5 254.8 259.6 265.1 270.3 276.6 232.5 235.0 237.9 237.5 239.3 242.7 245.9 248.7 254.7 257.6
266.5 272.6 280.3
100.0 200.0 300.0 400.0 500.0 600.0
(trillion ¥)
556.9 – 469.0 = 87.9
(trillion ¥)
Decrease in Bank Loan Increase in Bank Deposit
(December 1999 – October 2011)
395.5 – 496.7 = -101.2
Increase in Equity (Net Assets)
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0.0 100.0 200.0 300.0 400.0 500.0 600.0
FY1990 FY1999 FY2000 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010
218.6
287.0
336.3
377.9
426.7 439.0
467.6 484.5
505.2
Japanese Companies' Equity
(All Industrial sectors and all sizes, excluding Banks and Other Financial Industries)
505.2 – 287.0 = +218.2
(trillion ¥)
Source: MOF
In te re st R a te s i n Jap an
0 0.5 1 1.5 2 2.5 3 3.5 4
Oct-93 May-94 Dec-94 Jul-95 Feb-96 Sep-96 Apr-97 Nov-97 Jun-98 Jan-99 Aug-99 Mar-00 Oct-00 May-01 Dec-01 Jul-02 Feb-03 Sep-03 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08
City Banks Average Lending Rate (Short
Base Rate
O/N Call Rates
City Banks CD Rate (Less than 30days)
Source: BOJ
4.Recent Market Development
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The Vision behind
• To make Japa ’s fi a ial and capital market and financial industry more internationally
competitive
– Create a market which can be comparable to Euromarket
• To develop an easy to use + cost competitive
market for professionals (professional investors and professional issuers all)
• To provide more options for companies in fundraising - create an effective alternative
2008 Legislation for the Professional
Securities Market
• The Japanese Government revised the
Financial Instruments and Exchange Act (FIEA) in 2008, creating a new professional investor only market system in order to meet with the above vision.
• The biggest feature of this legal framework was the creation of the e ha ge regulated market system which is exempt from the full disclosure requirements.
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Comparison of Japanese Market and Euro Market
The Euro Bond Issuing Market
(Mostly for institutional investors) The Japanese Bond Issuing Market
Securities Registration Statement System (Shelf Registration System)
The system is for general investors including retail The issuance is mostly for professional investors
The system and the issuance for
LSE Main Board
(About15,000 issues)
LSE PSM
(About 500 issues)
LUX Main Board
(About 25,000 issues)
LUX Euro MTF
(About 4,000 issues)
SGX
(About 1,000 issues)
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Implication of Pan-Asian PRO-BOND Market
Sequence of Bond Markets Development in Asia
Local Bond Markets (Domestic Bond Market)
Foster government bond market
Create the benchmark yield curve
Foster corporate bond markets
Circulate domestic savings
Cross-Border Bond Markets (Foreign Bond Markets) A Part of Domestic Market
Outward issuance by residents, inward issuance by non-residents and cross-border investments
Subject to home country or host country rules and regulations
Different stage of economic development and heterogeneity in legal and institutional systems and infrastructure
Japan – Samurai Bond Korea – Ariran Bond China – Panda bond
Cross-Border Inter-Regional (wholesale) Bond Market
In Asia
Harmonization of heterogeneous rules and regulations for professionals in Asian region
Facilitate inter-regional circulation of savings within Asia
Creation of self-regulated Asian Inter- Regional (wholesale) Bond Market for professional market participants
For instance, Asian Exchange regulated market
Heterogeneity
Homogeneity
Inter-Regional Domestic
Private Placement Market and Public Offering Market for
professionals with common standard format
Used to be a Self-Regulated Market by professional market players
Eurobond Market
How can we establish an Asian common set of standards and regulation to promote Cross-Border Inter-Regional (wholesale) Market in Asia?
- ABMF - Asian SRO
-( Asian Supervisory Authorities) Inukai & Hyun (2010)
Current Japanese Market TOKYO PRO-BOND Market Asian PRO-BOND Market
Comparative Legal Studies tradition
and
Importance in showing Asian model
Comparative Legal Studies as Japa ’s
tradition
• Civil law or civil law system has developed in Western Europe, and widely adopted in
continental Europe.
• Japan has adopted it during the Meiji
Restoration, and then spread in Korea and China and other East Asian countries.
• Japan, then, while under the influence of
English law and U.S. law, became rooted in the tradition of Comparative Legal Studies in Asia.
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• On the other hand, Common law historically derived from English law, now forms the
foundation of the UK (except Scotland), the British Commonwealth countries and English- speaking country's legal system.
• For example, in Asia, countries and regions that there was once a British colony,
essentially have maintaining the tradition of
Importance in showing the model of
Pan-Asian PRO-Bond Market
• → I the West, i order to sta ilize the fi a ial s ste a d to prevent the recurrence of the global financial crisis, it has
become a definitive direction to strengthen supervision and financial regulation.
• → For Asia, when we seek for a way and a direction of the development of our own capital market regulation and supervision in the Asian region, it is important (1) to take
advantage of high savings and a robust economy within Asia, and (2) to emphasize harmony with the traditions and the culture in Asia.
• → What are the asi pri iples of legislatio s / self-regulations / regulatory supervision to be applied to the common financial and capital markets for professionals within the Asian region?
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• → It is a i porta t poli issue i Asia region as a whole for regional market
participants and regulators to discuss the basic principles, and share together, both vision and design (Asian model) of the
legislative and regulatory infrastructure of the professional market, i.e. Pan-Asian PRO-Bond Market.
