As the fourth-largest economy in the world, Japan is home to a large financial sector. Financial and economic activity in Japan is centered around Tokyo, the world’s largest city by GDP, which aims to become a financial hub for Asia and the world.
With Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group, three financial conglomerates are dominant in Japan’s banking industry. Japan’s mega banks combine a wide range of financial services through group companies and are among the largest banks globally. Another major financial institution in Japan is Japan Post Bank, a subsidiary of the Japan Post Group, which is partly government owned. With more than 20 thousand branches all over Japan, it is one of the largest banks in the country. In addition to various financial institutions, non-financial institutions such as retailers have started offering financial services to consumers since the late 1990s.
Japan’s central bank, the Bank of Japan, has recently ended a decade-long policy of negative interest rates and yield curve control. In March 2024, the bank raised short-term interest rates for the first time in 17 years. Japan remained the country with the lowest central bank policy rate among major economies worldwide. Over the past decades, the BOJ had pursued a policy of monetary easing. As a result, financial institutions in Japan operated in an ultra-low interest rate environment that affected their profitability. With digitalization and Fintech on the rise, traditional players in the industry have been facing competition from new businesses entering the market. Recently, efforts to increase the attractiveness of Japan as a global financial hub, with Tokyo at its core, have accelerated, resulting in a number of policy initiatives aimed primarily at facilitating entry to the financial and capital markets for foreign financial institutions and asset managers.
Key financial institutions in Japan
The financial sector comprises various financial institutions, such as banks, insurance companies, and securities firms, that provide financial services and products to corporations and individuals. The Financial Services Agency oversees financial institutions as Japan’s primary regulatory body to ensure stability in the financial system.With Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group, three financial conglomerates are dominant in Japan’s banking industry. Japan’s mega banks combine a wide range of financial services through group companies and are among the largest banks globally. Another major financial institution in Japan is Japan Post Bank, a subsidiary of the Japan Post Group, which is partly government owned. With more than 20 thousand branches all over Japan, it is one of the largest banks in the country. In addition to various financial institutions, non-financial institutions such as retailers have started offering financial services to consumers since the late 1990s.
Development in recent decades
The finance and insurance industry in Japan has experienced several financial crises over the past three decades. The burst of the speculative asset price bubble in the early 1990s was followed by a decade of recession, the so-called lost decade, and resulted in a non-performing loan problem and the collapse of private financial institutions. Between 1996 and 2001, the government introduced a series of reforms that were referred to as the Japanese version of the financial big bang, and aimed for the deregulation of the Japanese finance sector. The liberalization of the finance sector facilitated competition between financial institutions and sparked the emergence of financial conglomerates through consolidations.Japan’s central bank, the Bank of Japan, has recently ended a decade-long policy of negative interest rates and yield curve control. In March 2024, the bank raised short-term interest rates for the first time in 17 years. Japan remained the country with the lowest central bank policy rate among major economies worldwide. Over the past decades, the BOJ had pursued a policy of monetary easing. As a result, financial institutions in Japan operated in an ultra-low interest rate environment that affected their profitability. With digitalization and Fintech on the rise, traditional players in the industry have been facing competition from new businesses entering the market. Recently, efforts to increase the attractiveness of Japan as a global financial hub, with Tokyo at its core, have accelerated, resulting in a number of policy initiatives aimed primarily at facilitating entry to the financial and capital markets for foreign financial institutions and asset managers.
