The significance of these moves extends well beyond just size. They indicate, say some analysts, that Japan is beginning to focus on banking and financial sector reform with the same kind of intensity that it applied earlier to building super-efficient export industries. The banking alliances are defensive in nature but they point to the emergence of more aggressive attitudes among Japanese bankers towards investing in technology, and raising the sophistication of their operations to world-class levels. Some have argued that merging weak banks does not create a strong one. But the bad debt problem is already being eroded by a strengthening in Japan's economy and by a steady decline in the rate of new corporate bankruptcies.
Mergers appear to be more about creating new strengths than dealing with old weaknesses.
They also indicate fundamental changes in corporate and shareholding structures as well as further realignments within Japan's banking sector. The mergers do not suggest that what are likely to be the remaining four or five leading Japanese banks after the merger wave ends will reverse the dramatic retreat they have made in recent years from international lending. Toru Hashimoto, chairman of Fuji Bank, says it could be up to two years before Japanese banks make a convincing reappearance on the international stage. But when they do, it is likely to be from a springboard of genuine competence rather than on the basis of asset inflation induced by a bubble economy as in the past. Sumitomo and Sakura, two leading 'city' or money-centre banks, revealed in October that they are in talks with a view to merging completely by April 2002, although they plan to begin exchanging shares in each other by the end of the fiscal year in March, and to integrate certain operations before the merger date.