Until April, Japanese companies were only able to use yen for settlement of payments among their units. Now that they can use foreign-currency reserves they have on hand, they no longer have to pay exchange commissions to banks. In particular, companies operating both at home and abroad, previously settling import and export accounts separately for each subsidiary, can now consolidate all accounts of the group as a single account, saving time and effort in the settlement process.

Money-changing is another area where big changes are expected. Prior to the legal revision, certification was needed to offer this service; apart from banks, it was only granted to a select few classes of business, such as major travel agencies. This restriction has been lifted. Supermarkets, convenience stores, and other retailers are already preparing to allow customers to pay in dollars and other major currencies after on-the-spot conversion into yen. Also abolished were the permit and notification requirements to which investors were subject before buying stocks abroad, and restrictions on the opening of accounts at overseas financial institutions. Japanese investors are likely to show heightened interest in foreign financial products as they seek better returns on their money.

Survival of the Fittest
Another step will be the further lowering of regulatory walls keeping insurance, banking, and other firms off each other's turf. Financial institutions are seeking a greater share of the 1.2 quadrillion yen (9.2 trillion dollars) in individual assets held by the Japanese. Investment trusts--the Japanese version of mutual funds--were once monopolized by brokerages. But from December 1997, banks have been able to rent out space at their branches to foreign and their own affiliated operators of investment trusts. From December 1998, banks themselves will be able to market investment trusts directly.

These deregulatory measures have aroused the interest of foreign financial firms like Merrill Lynch, the biggest U.S. brokerage. It has taken on staff and acquired some branches of failed Yamaichi Securities Co. Having set up a new company, it plans to focus on retail services at around 30 branches nationwide from mid-1998.

Meanwhile, as the first Big Bang reforms bring about heightened competition in the financial market, "prompt corrective action," a new financial policy tool to gauge the soundness of individual companies, has also gone into effect from April 1998. This requires financial institutions with low levels of capital adequacy to improve their financial condition. If the capital adequacy ratio (a financial institution's capital and other "own" assets as a percentage of all its assets, among which are included credits to borrowers) of the institution falls below a certain level, the government may order it to improve or even to stop its operations.

After the Big Bang, financial institutions and investors will have to take full responsibility for their decisions, and many of the former will be forced out of business. But it is only through such bloodletting that Japanese financial markets are expected to revive.