Japan's Approach to Deregulation to the Present

April 1999

I. Overview

1. Framework of deregulation

(1) Deregulation Program Outline (1988 Cabinet decision)
Structural Impediments Initiative (1989)
(2) Deregulation Action Program (1995-1997)
      2823 items (measures implemented or partially implemented for 2793 items, or 99%)
(3) Three Year Action Program for the Promotion of Deregulation (1998-2000)
      917 items (measures implemented or partially implemented for 311 items [March 1999])

2. Effect of deregulation (FY1990-1997)

(1) Effect of deregulation on Economic Growth
      pushing nominal GDP growth rate up 0.45% yearly
      pushing real GDP growth rate up 0.39% yearly
(2) Effect on Demand (Note)
      Yearly average increase of 8.2 trillion yen
(approximately 1.73% to nominal GDP) in consumption and investment, etc.
(3) Effect on User Merits
      User burdens have been lightened to an average 6.6 trillion yen annually
(approximately 1.38% to nominal GDP) due to a fall in prices.

II. Telecommunications

(excluding Mobile Telecommunications Market)

1. Deregulation measures

1985 Introduction of competition principles in all market areas
Privatization of NTT
1996 Complete liberalization of public-leased-public interconnections (international "ko-sen-ko" interconnections)
1997 Revision of the NTT Law in accordance with the restructuring of NTT,complete liberalization of public-leased-public interconnections ("ko-sen-ko"), abolition of foreign capital regulations (excluding NTT, KDD)
1998 Complete privatization of KDD, change from the system of individual approval of charges to a system of notification relating to Type 1 telecommunications

2. Effect

- Since 1985, approximately 6,600 companies have entered the telecommunications market as a whole
Of these, 156 have entered into Type 1 telecommunications
Of these, five companies are 100% foreign capital, and 25 companies have more than 5% foreign capital
- Share of new entrants (*) in the domestic long-distance telephone market
1986 1992 1997
0% 27% 41%

Share of new entrants (*) in the international telephone market

1987 1992 1997
0% 30% 41%

(*) Excluding NTT, KDD, DoCoMo

- Telephone charges have decreased as a result of intensified competition in long-distance and international telephone markets
Between 1990-1996:
Average prices across all industries increased 4.7%
Telecommunications consumer prices decreased 16.1%
- Telephone charge from Tokyo to Osaka
April 1985
400 yen
February 1998
90 yen
*** Mobile Telecommunications Market ***

In particular, with the advancement of deregulation in this market as shown below, subscriber numbers have rapidly increased from the 1993 figure of 2.13 million to the 1998 figure of 39.21 million.

1979 Initiation of NTT service
1988 New business entry
1992-1993 Separation and division of NTT Mobile Communications Network, Inc.
1994 Introduction of the cellular and car phone set sell-off system
1995 Initiation of PHS (Personal Handy System) telephone service
1996 Change of charges from system of approval to system of prior notification

III. Financial Services

1. Main deregulation measures

(Overall industry) March 1998 Introduction of a financial holding company system
(Banks) Dec. 1998 Initiation of over-the-counter sales of investment trust funds by banks
(Securities) April 1998 Partial liberalization of brokerage commission (over 50 million yen) (scheduled for complete liberalization by the end of 1999)

March 1999 Abolishment of tax on securities transactions
(Insurance) Oct. 1996 Approval of mail-order sales business of insurance products

July 1998 Abolishment of obligation to use brokerage commission schedule

2. Effect

As reforms have taken place in this area relatively recently, a quantitative analysis of effect is insufficient. However, effect is shown below.

(Overall industry)

- With the introduction of financial holding companies, moves toward restructuring the financial sector have been accelerated


- With over-the-counter sales being conducted by banks, the balance of investment trust funds has substantially increased

- With other measures taken up, the saving balance of foreign banks has also increased

(trillion yen)
1986 1991 1996
1.8 4.5 9.3


- With fierce competition to lower commissions, the market has been revitalized. Closure and mergers of securities companies have been and will continue to be proceeding at a substantial pace, and the entry of foreign capital is also expected to be strengthened. Entry by foreign capital brokers is also expected due to stock transactions via the Internet.
- The securities market has become easier to use due to the abolishment of the securities transaction tax. It is also expected to contribute to the globalization of the yen.


- Competition has been promoted by the granting of more discretion in setting premiums. Foreign capital entry has also been promoted.
- Foreign insurance companies, such as American Home Assurance Company and Zurich Direct, have cultivated new clients in the mail-order sales business.


[Private sector practices]
The acceleration of foreign financial institutions entering into the Japanese market, has been brought about not only by deregulation, but also by changes in private sector practices, such as main bank systems and cross-sharing systems.

*** Pensions Market ***

Fixed contribution pension system
(Current situation)

Dec. 1998 Draft by the Liberal Democratic Party related to the introduction of a fixed contribution pension system
Present Under review by four related Ministries (Ministry of Finance, Ministry of Health and Welfare, Ministry of Labour, Ministry of International Trade and Industry)
(draft will be ready by June)
(If deemed satisfactory, the system will be introduced from 2001)

IV. Transportation

(Domestic Aviation)

1. Deregulation measures

(Relaxation of double and triple tracking standards)

1986-1996 Two stages of relaxation of standards for approving double and triple tracking (demand standards)
1997 Abolishment of double and triple tracking standards

(Increased flexibility of discount fares)

Dec. 1994 System of notification introduced for strategic sales discounts not exceeding 50%
May 1995 Introduction of discounts for advance purchases
June 1996 Introduction of a flexible airline fare system (air carriers may set fares at their own discretion within a certain range)

(Promotion of new entry)

1994 Report of the Council for Civil Aviation (ensuring a fixed number of flights for newcomers)
1997- Establishing and allocating increased arrival and departure slots generated from the initiation of a new runway at Haneda Airport to accommodate new companies

2. Effect

(Double and triple tracking)
- Since October 1990
Double-track routes : 11 routes --> 37 routes
Triple-track routes : 6 routes --> 25 routes

(New entry)
- September 1998 Skymark Airlines (Tokyo-Fukuoka)
December 1998 Air Do (Tokyo-Sapporo)

(Fare decreases)
- Expansion of rate of discounts due to double and triple tracking
- Following the entry of Skymark Airlines and Air Do, the other airlines ( JAL, ANA and JAS ) have introduced new discount rates of
max 50% for the Tokyo-Fukuoka route
max 40% for the Tokyo-Sapporo route

(Taxi Industry)

1. Deregulation measures

(Relaxation of the supply-demand adjustment standards)

1997 - Relaxation of the supply-demand adjustment standards
(Supply-demand adjustment standards are scheduled to be abolished by FY2001)
Relaxation of minimum vehicle ownership
Zoning system to be halved within three years

(Relaxation of fare regulations)

Oct 1993 Approval for individual assessment on fares cheaper than the average cost price
Feb 1997 Introduction of the zoning fare system and curtailment of first zone fares

2. Effect

- In FY1997 there was new business entry in Tokyo for the first time in 33 years (nine companies, 304 vehicles)
- As of November 1998, 525 companies and 3,518 vehicles had set fares lower than the zoning system ceiling
- As of the end of November 1998, 139 companies and approximately 6,000 vehicles had introduced curtailed first zone fares, for example, by setting fares at almost half the price of first zone distances and fares
- In addition to the above, the taxi industry has been activated, for example with the initiation of taxi companies with female drivers only

*** Abolishment of Supply-Demand Adjustment Regulations ***

Under the basic principles of the Three Year Action Program for the Promotion of Deregulation, guidelines were determined to abolish the supply-demand adjustment regulations in all fields of the transportation industry, such as domestic aviation, passenger railways, chartered buses and domestic passenger shipping.

V. Fee-Charging Employment Placement

1. Deregulation measures

Initially Limited occupations were covered by fee-charging employment placement agencies and were limited according to the Employment Security Law.
(Positive list: 11 occupations)
1990 Expansion of the positive list
(Positive list: 29 occupations)
April 1997 In stead of the positive list, occupations not to be covered by fee-charging employment placement agencies were specified.
(Negative list formula)

- As a result, the number of people working in the range of the occupations covered by the fee-charging agencies, have expanded from approximately 18% to approximately 60% of the entire work force.

2. Effect

- There has been an increase in the number of offices which are approved and are providing paid job placement services.
March 1997: 3, 187 offices --> March 1998: 3,375 offices
- The rate of employment (number of cases of finding general employment/number of effective job seekers) has increased in comparison to the number of public employment security offices. FY1997 saw an increase of 5,585 employees from the previous year (improving the rate of unemployment by 0.01%).

3. Future trends

Reviews will be carried out with a view to expanding the range of occupations covered by these agencies, except port and harbor transportation workers, and construction workers.

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