PLC - The financial markets in Japan 2009 and outlook for 2010

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The financial markets in Japan 2009 and outlook for 2010
Resource type: Legal update: archive
Status: Published on 26-Jan-2010
Jurisdiction: Japan

This article is part of the PLC Global Finance January 2010 e-mail update for Japan.
Atsumi & Partners

SpeedreadThis article highlights the most significant developments related to the financial markets in Japan in 2009, as
well as looking forward to those to come in 2010.

The economy and financial markets in 2009
As with the economies of many other countries, the Japanese economy was heavily impacted by the global
financial crisis. Compared to 2008, quarterly real gross domestic product (GDP) of Japan in 2009 was:
-8.9% for the first quarter.
-5.8% for the second quarter-5.1% for the third quarter figures.
(The final quarter will be announced in February 2010).
The Nikkei Stock Average, which ranged between approximately 12,500 to 14, 500 in 2008 before thebankruptcy of Lehman Brothers, fell sharply to the 8,500 level on news of the insolvency and stayed inside arange of 7,000 to over 9000 in the first half of 2009.
In January 2009, the Bank of Japan introduced two measures to stabilise the economy:
A special operation to facilitate corporate financing which enabled financial institutions to obtain fundswith no explicit ceiling on the total funds available but with interest rates lower than corresponding market
interest rates.
Outright purchases of commercial paper (CP).
The economy and financial markets of Japan are now emerging from the crisis, and commentators expect
growth in 2010. The Nikkei Average in the second half of 2009 stayed continuously over 9000 and sometimes
moved above 10,000. By January 2010, it moved continuously above 10,000 and reached 10,798, higher thanany end of month in 2009.
The Bank of Japan:
Ended the special operation to facilitate corporate financing at the end of 2009.
Will end outright purchases of CP by the end of March 2010.
According to the official forecasts announced in December 2009, the annual real GDP in 2010 will increase by
1.4% from that of 2009 (though negative growth is still expected).
Major developments in the financial and corporate sectors in 2009http://uk.practicallaw.com/9-501-3494

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Financial sector. The following major developments took place in the financial sector:
Amendments to the Financial Instruments Law of Japan enacted in 2009:
expanded the scope of regulated entities to include rating agencies;
set out a system of financial alternative dispute resolution; andamended the disclosure rules for secondary offerings of securities.
Under the amended disclosure rules, exemptions are more readily available and certain types ofsecondary offerings for foreign securities may enjoy reduced disclosure requirements (for example,treasury bonds issued by certain foreign countries or securities listed on certain foreign exchanges.)
The amendments will take effect in a staggered way from April 2010.
Tokyo AIM commenced operations in June 2009. This is a new exchange, modelled on London's AIM,targeting Japanese professional investors and non-residents (whether professional or not) and employing
a flexible regulatory approach to listing and disclosure (for example, assessment by J-Nomad (modelledon Nominated Advisor in London's AIM); English language disclosure availability).
The Settlement and Payment Systems Act was enacted. This Act (i) introduced regulations in respectof prepaid settlement methods (so-called "electronic money") the records in respect of which aremaintained only on a server or on the internet, and (ii) was amended to permit non-banks to conduct andprovide fund transfer services. This Act will come into in force in 2010.
Japan Association of Turnaround Professionals started its service. In terms of debt restructurings,
the Japan Association of Turnaround Professionals (JATP) started its mediation service at the end of2008 and the workout process provided by JATP has been used more and more frequently throughout
2009. In addition, the Enterprise Turnaround Initiative Corporation of Japan (ETIC), a restructuring fundacting under special legal framework and financially supported by the government, commenced
operations in October 2009, and is currently working intensively on the workout of Japan Airlines.
Commercial and Corporate sector. Under Japanese commercial and corporate laws, all paper sharecertificates issued by any listed company became invalid and had to be converted to electronic sharecertificates in January 2009. All transfers of listed shares are now effected through an electronic system. The
conversion process took 5 years to prepare, so there was very little confusion in the market with regards tothe implementation.
As a result of the change to the electronic share certificate system, the way to execute rights as a shareholder
also changed. For example, a shareholder who wants to propose a shareholders' meeting agenda must
request the depositary trust company to send a notice to the company stating that the shareholder is qualified
to propose an agenda (terms of holding shares, number of shares, and so on) instead of the company being
required to confirm the shareholders entry in the registry.
In 2009, the courts made the following important rulings:
A "fair" share buy-out price should be determined when a company plans to "squeeze-out" minor
shareholders considering the aggregate value of control and squeeze-out premiums.
If a company has established an internal control system to prevent reasonably expected inappropriate
behaviour, it will not be liable for any tort committed by its employees where the commission of such tort
is not reasonably anticipated.
Corporate governance has been the subject of much discussion in 2009. In particular the necessity ofmaintaining an independent director and the role of the statutory auditor (Kansayaku) have been

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discussed. It is expected that such issues will form the basis of discussions to be held by the Democratic
Party in relation to the drafting of a new Listed Company Act (Kokai-Kaisha Ho).
Expected major reforms in the financial and corporate sectors in 2010
Three months have passed since the Hatoyama administration came into office on 16 September 2009, andmost commentators suggest that in 2010 the new administration will make genuine efforts to implement
policies to which the Democratic Party of Japan (DPJ) is committed.
Financial measures which the Cabinet planned in "Emergency Economic Countermeasures for Future
Growth and Security" on 8 December 2009. These are as follows:
Extending the term of the existing emergency credit guarantee scheme for small and medium-sizedenterprises (SMEs) and easing the eligibility criteria for SMEs seeking to benefit from it.
Making of urgent loans to save SMEs through Japan Finance Corporation and Shoko Chukin Bank (twogovernment-owned banks).
Imposition of an obligation on financial institutions to strive to revise loan terms when requested by an
SME or a residential mortgage borrower to ease the debt burden through enforcement of the Act
Concerning Temporary Measures to Facilitate Financing for SMEs, and implementing necessary financial
inspections and supervision to enhance the effectiveness of the Act.
Increasing the volume of long-term loans to medium and large-sized enterprises in financial crisis throughthe Development Bank of Japan.
Introduction of a system that eases the effects of the relatively high interest rates resulting from deflation,
which reduces the yields on loans made by private financial institutions and the Japan FinanceCorporation.
Making of urgent loans by the Japan Bank for International Co-operation and providing guarantees tosupport overseas business operations of Japanese companies.
Main Points of the Draft Blueprint for the Development of Institutional Frameworks Pertaining to
Financial and Capital Markets. According to these, which were published by the Financial Services Agencyof Japan (FSA) on 17 December 2009, the government is reviewing the following policies in view of the recent
global financial crisis and the actual condition of Japanese markets (no policy determinations have been
made to date):
The prevention of contagion and reducing settlement risk in Japanese markets by introducing regulations
to require financial instruments business operators with large-scale over-the-counter (OTC) derivativetransactions businesses to use the central counterparty clearing system (CCP) established in Japan andby requiring trade repositories and the CCP to submit information on OTC derivative transactions to theFSA.
Strengthening the systems of the Japan Government Bond Clearing Corporation (JGBCC) to increase theuse of its clearing services and reduce the settlement risk.
Formalising regulations and supervision on a consolidated basis for securities companies whose overallrisks are difficult to assess under current non-consolidated based regulation and supervision.

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Strengthening regulations applicable to major shareholders of financial instruments business operatorsand requiring such shareholders to ensure that the business operations of the financial instruments
business operator are conducted in an appropriate manner.
Introducing prudency standards on a consolidated basis which cover the entire group of companies led byan insurance company or an insurance holding company in order for the FSA to have a better
understanding of the financial soundness of the group as a whole.
Expanding the items to be reported by hedge fund managers to the FSA.
Introducing more comprehensive regulations on unsolicited offers for derivative transactions.
Developing a reporting system for the short selling of securities.
Public Company Act. According to the 'DPJ Policies INDEX 2009', the DPJ has taken the view that thePublic Company Act should be enacted and that:
It should be obligatory for listed companies to introduce outside directors.
It should be obligatory for listed companies to involve employee representatives in a board of auditors.
A double derivative action system similar to the one in the US should be introduced in Japan.

Resource information
Resource ID: 9-501-3494
Published: 26-Jan-2010
Products: PLC Cross-border, PLC Global Finance, PLC US Law Department

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