Current Business and Legal Issues in Japan's Banking and Finance Industry

The following sections are included:

• Preface to the 2^nd Edition

• Preface to the 1^st Edition

• Contents

• About the Author

The book is about Japan's Banking and Finance with special emphasis on current business and legal issues.

The Commercial Code was transplanted from Germany to Japan in 1899 as a part of the general acceptance of Western law in the Meiji period. The post-war corporate laws in Japan were modeled after those in the United States. For example, the Securities Exchange Law of Japan enacted in 1948 was based upon the laws of 1933 and 1934 in the United States and was imposed by the occupation authorities as a condition for the reopening of the securities exchanges. This Japanese law contained disclosure provisions substantially similar to the requirements of the American law. Germany is a civil law country, while the United States is a country of the common law. Any confusion in the legal concepts in Japan may be attributed to the slight difference in the rules and practices of the two source countries…

This article evaluates whether the Tokyo international capital market can play a major role in the realm of international finance and what it must do to get there. The historical development and relevant laws and regulations governing the operation of this market are discussed. In addition, this article summarizes various arguments existing in Japan on the current issue of accounting standardization as well as the official position of the Japanese government expressed in the Ministry of Finance Memorandum.

The following sections are included:

• Before the Big Bang

• Demise of the High Growth Period and Birth of the Bubble Economy

• The Japanese Big Bang (Financial Overhaul)
  • Realization of Broader Competition
  • Liberalization of Asset Transactions
  • Reevaluation of Regulating and Monitoring System

• Reforming the Financial System
  • Shift Toward the “Business-Category Subsidiary” System
  • Legalization of Financial Holding Companies

• Revitalization Through Coordination and Consolidation in 1990s

• Japanese banks in the 2000s

• Bad Loans Under Prolonged Business Stagnation in Japan

• Bibliography

The following sections are included:

• Part One Bad Loans: A Comparative Study of US and Japanese Regulations Concerning Loan Loss Reserves
  • Japanese Corporate Accounting Principles
  • Japanese Legal Regulations on Bad Loans
  • Commercial Code
  • Securities Exchange Law
  • Corporate Tax Laws
  • Legal Precedents
    • Outline of the Case
    • Issues
    • Court's Judgment
    • Comment
  • Regulations on Bad Loans in the US
    • SEC Laws
    • Tax Laws
    • Legal Precedents: Case 1
    • Legal Precedents: Case 2
  • Official Views of the Japanese Government on Bad Loans
  • Conclusion

• Part Two Bank Director's Decisions on Bad Loans: A Comparative Study of US and Japanese Standards of Required Care
  • Introduction
  • Duty of Care Required from Directors in Japan
    • Bona Fide Director's Duty of Care
    • Principle of Management Judgment
  • Japanese Case Law
    • Director's Duty of Care as an Ordinary Corporate Person (Chukyo Bank Case)
    • Management Decision (Nomura Securities Case)
    • Reliance Rule (Long Tem Credit Bank Case)
  • Standard of Duty of Care Required in the United States
    • Corporate Law in General
    • US Case Law
  • Comparison of Japan vs. the United States
  • Conclusion

• Part Three Case Study of the Long Term Credit Bank of Japan
  • Introduction
  • Resolution and Reconstruction Corporation (RCC)
  • Civil Liability (1)
    • Outline of the Case
    • Issues
    • Court's Judgment
    • Comments
  • Civil Liability (2)
    • Facts
    • Court's Judgment
    • Comments
  • Criminal Liability
    • Facts
    • Points of Issue
    • Court's Judgment
    • Comments
  • Litigation by EIE against LTCB
  • Conclusion
  • Bibliography

The following sections are included:

• Part One A Comparative Study of US and Japanese Bank Directors' Duty of Disclosure
  • Statutory Regulation for Disclosure in Japan
    • Securities Exchange Law
    • The Commercial Law
    • Banking Law
    • Financial Revitalization Law
  • Duty of Disclosure in the United States
    • Statutory Laws
    • Delaware's Duty of Disclosure (Common Law)
  • International Standard Applicable to the United States and Japan
    • Non-Financial Disclosure
    • Financial Disclosure
  • Selective Disclosure of Corporate Information in the United States
    • Background
  • Difference between US and Japanese Insider Trading Regulations
  • Conclusion

• Part Two Case of Seibu Group — Recent Problems on Japanese Corporate Disclosure System
  • Introduction
  • Efficacy of Japanese Disclosure System and the Seibu Case
  • Falsification of Financial Statements
  • Insider Trading
  • Owning Shares Under Other Names
    • Facts
    • Judgment at the District Court
    • Judgment at the Appellant Court
    • Comment
  • Conclusion
  • Bibliography

The following sections are included:

• Introduction

• Sales Recognition for Japanese Corporations
  • Trading Companies
  • Manufacturing Industry
  • Construction Industry
  • Information Technology (IT) Industry

• Accounting Standards on Sales in Japan

• Accounting Standards on Sales in the US

• Adoption of International Accounting Standard in Japan

• Bibliography

The following sections are included:

• Introduction

• Various Arguments about the IFRS in Japan
  • Opinions of the government
  • Opinions of private sectors
  • Opinions of journalists

• The 2005 Problem

• Current Disclosure Requirements in Japanese Markets Based upon Different Accounting Standards
  • Cases of foreign companies
    • Treatment by foreign companies of the Japanese standards under the existing law in Japan (Case 1)
    • Treatment by foreign companies of the “home country standards” or the “third country standards” under the existing law in Japan (Case 2)
    • Arguments about foreign companies who use IFRS (Case 3)
  • Cases of Japanese companies

• Dual Accounting Regulations in Japan

• “Legend” Issue

• Differences between Japanese Accounting Standard and IFRSs

• Challenging Tasks for Japan
  • Short term goal
  • Long term goal

• Conclusion
  • Benefits and disadvantages to Japanese companies of adopting international accounting standards
  • Benefits for foreign companies that intend to raise funds in Japan
  • Benefits for foreign companies that conduct business in Japan

• Appendix I — Major Differences between Financial Documents/Consolidated Financial Documents of the Japanese Commercial Code and International Accounting Standards

• Appendix II – Accounting for Impairment under Japanese, US, and International Standards

• Bibliography

The following sections are included:

• Introduction

• Stockholder's Derivative Suits in Japan
  • Case A: Mitsui Mining Co., Ltd.
  • Case B: Hazama Gumi Ltd.
  • Case C: Nomura Securities
  • Standard of Directors' Liability
  • Application of old standards to the Daiwa Bank case

• Factual Background of the Daiwa Bank Case in New York

• The Court Decision for the Daiwa Bank Shareholders' Suit in 2002
  • Issue 1: whether nonfeasance existed regarding duties of establishing an internal control system
  • Issue 2: whether nonfeasance existed regarding duties concerning the violations of US laws
  • Issue 3: existence and scope of damage

• US Administrative Legal Actions against Daiwa Bank in 1995

• Meanings and Issues of Derivative Action against Daiwa Bank in 2002
  • Responsibilities of directors concerning violations of US laws
    • Meaning of “laws” in Article 266, Section 1–5 of Commercial Code
    • Principle of respondent superior
    • Negligence concerning recognition of illegality
    • Claim of “management decision”
    • Intervention of MOF (expectation probability)
  • Responsibility for establishing internal control system
    • Responsibility of establishment
    • Responsibility of care
    • Principle of trusting right

• Responsibility of Information Disclosure

• Effect of Court's Decision in 2002
  • Abatement of shareholder's responsibility to corporation; rationalization of shareholder's representative action
    • Abatements of responsibilities of directors and others to corporation
    • Abatement of outside director's responsibility
  • Rationalization of shareholder's representative action
    • Extension of consideration period
    • Revision concerning public announcement and notice to shareholders
    • Improvement on rules concerning amicable settlement on action
    • Company's assistance for defendant directors in shareholder's representative action

• Conclusion

• Bibliography

The following sections are included:

• Introduction

• Rationalization of Disclosure
  • Revision of prospectus system
  • Revision of TOB system

• Legalization of Securities Brokerage Business by Banks

• Enrichment of Institutional Framework for Competition Among Stock Exchanges
  • Reform of financial system
  • Best execution obligation
  • Improvement of price forming function of transaction system by PTS
  • Green sheet market

• Enhancement of Market Monitoring Function and System
  • Introduction of surcharge system
  • Review of civil responsibility regulation
  • Expansion of inspection authority of securities exchange surveillance committee

• Conclusion

• Bibliography

The following sections are included:

• Statistical Observation of M&A in Japan

• Livedoor vs. Fuji TV
  • Off-floor trading (TOSNET-1)
  • Share warrant
  • Corporate value
  • Crown jewels
  • Stock loan as a countermeasure against hostile takeover
  • New issue frame

• Court Judgment

• Responses from Japanese Government and Stock Exchange to M&A Countermeasures
  • Ministry of Justice — revision of Corporate Law
  • The view of Ministry of Economy, Trade and Industry on defensive measures against hostile takeover
  • Financial Services Agency
  • Tokyo Stock Exchange
  • Japanese courts — recent precedents on share warrant

• Countermeasures Taken by Japanese Companies
  • Not lowering the hurdles for dismissing directors
  • Make friendly trading partners a part of the defense plan
  • Always have a business plan ready
  • Other defensive measures

• Possibility of M&A of Japanese Companies by Overseas Sources
  • Tactics
  • Percentage of shares that need to be bought
  • Merger using offshore shares
  • Shares of Japanese companies are relatively inexpensive — opportune time to buy

• Conclusion

• Bibliography

The following sections are included:

• Introduction

• Creation of System for Banking Agencies in Japan
  • Background
  • Thoughts on Banking Agencies System

• Banking Agencies System in US
  • Strict Control on Doing Other Businesses
  • Banking Agencies in US

• Recent Reform of Japanese Banking Law Related to the Banking Agency System
  • Definition
  • Authorization of the Banking Agency Business
  • Introduction of License for Side Business
  • Explanation to Client
  • Proper Way of Conducting Banking Agency Business
  • Accounting
  • Affiliated Bank
  • Supervision of Banking Agencies
  • Exclusion of Application

• Conclusion

The following sections are included:

• Government Regulation of Political Donations in Japan
  • Contribution Limits
  • Disclosure

• Political Corruption in Japan

• Recent Trend in Japan Concerning Political Donations

• Leading Political Donation Lawsuits in Japan

• Comparison of the Yawata Steel and the Kumagaigumi Decisions
  • The Yawata Steel Decision
  • The Kumagaigumi Decision

• Supreme Court's Decision in Southern Kyushu Association of Accountants

• Debate in Japan Concerning Corporate Political Donations
  • Theories Upholding Corporate Donation
  • Theories against Corporate Donation

• Conclusion

The following sections are included:

• Introduction

• Increasing Japanese Investment in the US

• Case Studies in Investment Financing
  • A Large Firm: N Motor
  • A Medium-Sized Firm: N Plast

• Elements of Financial Engineering
  • Utilization of Government Financial Incentives
  • Utilization of Leasing
  • A Multi-Currency Mix

• Conclusion: Wider Application of Potential

The following sections are included:

• Existing Japanese Management
  • Keiten aijin
  • Zen no junkan
  • Tanohkoh seido
  • Nenkoh joretsu
  • Sabetsu
  • Shohgaikoyoh
  • Kigyohbetsu kumiai

• Difficulties in Understanding the Japanese Management

• Similarities in Management Techniques between Japanese and US Companies

• Changing Environment for Japanese Management

• Necessary Changes in the Japanese-Style Management

• Directions for Improvement in the Future

• Conclusion

The analyses of two Japanese companies reveals an interesting and noteworthy common principle as the basis of their success, which was their position as “contrarian.” “Contrarian” means someone who moves in opposition to others.

The following sections are included:

• Appendix The Center for Japanese Global Investment and Finance

• Index