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COLUMBIA
BUSINESS
SCHOOL
Asian Corporate Finance and Business Strategy
The Bull and the Bear Market: Merrill Lynch’s Entry
into the Japanese Retail Securities Industry
Peter Espig MBA ‘03
© 2003 by The Trustees of Columbia University in the City of New York. All rights reserved.
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS SPRING 2003
www.gsb.columbia.edu/chazenjournal
Background1
As one of the so-called Big Four (Japan’s four largest securities firms), Yamaichi Securities, prior to
its collapse, was a massive brokerage with assets of JPY 22 trillion (U.S.$203 billion), nationwide
retail capabilities and a brand name that was recognized by all domestic investors and foreign
financial institutions operating in Japan. It had expanded into the United Kingdom, Germany, the
Netherlands and Switzerland.
Like Japanese banks, domestic securities firms were supervised by the Japanese Ministry of
Finance (MoF). Their levels of financial risk were monitored by the Bank of Japan (BoJ), which
tracked information pertaining to the daily business transactions of Yamaichi and other major firms
and frequently conducted on-site examinations. Unlike banks, however, securities firms are not
required to maintain the required Basel I 8 percent Capital Adequacy Reserve for sufficient
protection in the event of unexpected financial losses.
This lack of a liquid reserve was instrumental in the fall of Yamaichi Securities when it was
struck with JPY 200 billion (U.S.$1.8 billion) in off-the-book losses. Had the Japanese economy not
been stricken by a decade-long recession, Fuji Bank, as Yamaichi’s main creditor, would have
come to the aid of the failing financial institution. Unfortunately, Fuji Bank itself was struggling
with core capital levels that had fallen far below reserve requirements, rendering it incapable of
offering any form of financial rescue.
On November 24, 1997, Yamaichi Securities held a multimedia press conference (soon to be
the norm for financial distress announcements) in which the chairman tearfully begged for investor
forgiveness and, along with other board members, accepted responsibility for being forced to
suspend the firm from engaging in new contracts. The announcement sent shockwaves throughout
the nation, and people immediately began to camp outside Yamaichi’s branches to retrieve their
investments. Unlike Sanyo Securities, which had declared bankruptcy (U.S.$25 billion) two weeks
earlier, Yamaichi maintained an extremely broad client base, with most investors having saved a
major portion of their finances at the firm (BIS Papers, Oct. 2001). In a show of security
unprecedented for Japan, riot police were stationed outside the entrances of Yamaichi’s branch
offices, while anxious individuals waited nervously to retrieve their money. Another significant
difference between the two bankruptcies was that Sanyo Securities ceased its operations
immediately upon making its announcement, whereas Yamaichi Securities was allowed to continue
its business in order to settle outstanding contracts. On the first day of business following the
announcement, investors pulled an estimated JPY 800 billion (U.S.$7.4 billion) out of the firm.
The immense size of the bankruptcy undoubtedly had immediate major repercussions in Japan
and throughout Asia. Furthermore, intense media scrutiny not only magnified the situation but also
left lasting impressions on Japanese savers concerning the risks of securities investments.
1. Merrill Lynch, 1999
Merrill Lynch is one of the strongest franchises in the global financial markets. It maintains a broad
diversification of client groups, product lines and geographic areas, which gives the firm a
1
This is a Columbia Business School Case prepared by Peter Espig, under the supervision of Robert Fallon and Lee
Branstetter. Peter Espig is a former employee of Merrill Lynch and prepared this paper based on personal experience and
publicly available materials.
SPRING 2003
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 1
powerful engine for future growth. Particularly in the equity field, Merrill possesses one of the
world’s most powerful brand names and business platforms. In 1998, it had made deep inroads
into the European markets, had seen its share price hit U.S.$100 and, finally, after more than 35
years, had begun to reap rewards from its Japanese experience. In fact, it could be argued that no
foreign investment bank firm had remained as committed to the Japanese market as had Merrill
Lynch.
What Merrill Lynch sought to target in Japan was a portion of the world’s largest asset pool—
an estimated U.S.$11 trillion dollars of Japanese savings. Exhibit 1 tracks the growth in this wealth
from the mid-1960s through 1998, as well as its allocation across different categories of assets. This
enormous pool of wealth included the capital of 1,900 pension funds with aggregate assets in
excess of U.S.$1.5 trillion. The breakdown of Japanese pension-fund capital across different fund
categories is profiled in Exhibit 2. In 1998, Japan’s stock of savings was expected to continue its 5
percent annual growth and reach U.S.$14 trillion by 2002 (CIBC Oppenheimer 1998).
Over the years, Merrill Lynch had built up its institutional securities business and an asset
management business in Japan. It sought to add to this a strong, complementary retail securities
presence in the world’s second-largest economy. In 1998, only about 7 percent of Japanese
household wealth was directly invested in the stock market versus nearly 30 percent in the United
States. Even a modest convergence of Japanese households toward a more “American” pattern of
investment of household wealth would seem to create enormous opportunities for the retail
securities industry. To put this another way, if Merrill were able to bring under its own
management even a small fraction of the nearly U.S.$6 trillion in household wealth stashed in
Japanese bank and postal savings accounts, it stood to reap enormous profits. Of course, other
Western financial institutions were enticed by the same opportunity, but the difficulties of reaching
sufficient scale in Japan to be able to reach out to the retail investor seemed daunting. Merrill’s top
leadership considered a number of options through which it could reach the desired scale,
including the acquisition of or merger with a domestic firm.
Before Yamaichi’s collapse, Merrill Lynch had been in negotiations with the firm for several
months, and Merrill was therefore well versed in Yamaichi’s day-to-day operations and
knowledgeable about its financial condition (Donaldson, Lufkin and Jenrette 1998). The collapse of
Yamaichi seemed to present Merrill with a once-in-a-lifetime opportunity to enter the Japanese
market on a large scale and with limited cost. Rather than spend a large amount of money
acquiring a going concern at a premium, Merrill was able to take over a large number of branch
leases and hire, at a stroke, several thousand seasoned Japanese finance professionals, some with
decades of experience.
2. The Merrill Lynch Bull
The bull has, depending on the culture, several different connotations: In Spain, it brings to mind
the annual pilgrimage to Pamplona for the Fiesta de San Fermín, when the brave engage in a
dance of death as they run with a stampede of bulls. In the United States, it refers to robust market
conditions. It also is synonymous with Merrill Lynch itself. In Japan, it is the famous symbol of yet
another cultural icon—Korean barbeque restaurants.
SPRING 2003
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 2
Nine months after Yamaichi Securities’s collapse, the doors opened once again to 30
former Yamaichi branches comprising several thousand former Yamaichi employees, employees
hired away from other financial institutions and Merrill Lynch managers. During this nine-month
period, assets had dropped from JPY 22 trillion to just over JPY 7 trillion, as anxious investors
withdrew capital from the securities firm. However, with Merrill Lynch’s global brand power, a
domestic equity research capability ranked second in Japan (Nomura Securities maintained the top
ranking) and an expensive advertising campaign that covered all media sources, Merrill was
confident of its ability to succeed. Outside each branch, Merrill’s bull symbol stood proudly, and
managers waited hungrily for clients to reinvest withdrawn money. Unfortunately, some potential
clients also arrived hungry—literally. They thought the branches were Korean barbeque
restaurants.2
3. Bank Deposits, Postal Accounts and Nomura Securities
The vast majority of Japanese savings in 1998 were held in bank deposits or postal savings
accounts—financial instruments that paid very low rates of return. In contrast, Merrill Lynch offered
potential investors a wide portfolio of investment products that, while riskier, offered Japanese
investors much greater potential returns on their savings. With its acquisition of Yamaichi’s assets,
Merrill Lynch had become by far the dominant non-Japanese brokerage firm in Japan. With the
addition of a retail enterprise to its No. 2–ranked institutional business and research platform, it
was now prepared to take on Japan’s leading securities firm, Nomura, and tap into Japan’s massive
savings pool. Merrill’s optimism was exemplified by John Sievwright, president of Merrill Lynch
Japan:
Merrill Lynch has been in Japan for 37 years. We have a strong institutional capacity, our asset
management side is growing, and now retail gives us the logical third component to our business
in Japan. There will be nothing Nomura has that we don’t have. . . . The idea is not so much
improving our share of the existing market, but more to tap money from outside, money saved in
the post office or stuffed under the mattress. The returns on investments are so bad in Japan. We’ll
be offering good yields, new products, and better managed funds, so we should attract
considerable new money. 3
Nomura had consistently maintained the top domestic ranking among securities firms in
postwar Japan. It operated 133 branches, employing 2,310 financial consultants; Daiwa operated
123 offices, employing 2,130 financial consultants; and Nikko operated 124 offices, employing
1,940 financial consultants (Nikkei Online). With 1,200 financial consultants trained under the
Merrill doctrine, the company was expecting to make major inroads into what Merrill Lynch Japan
retail president Ron Struaus referred to as “our top international market.” While Merrill now had a
scale sufficient to reach into the pocketbooks of Japan’s cautious savers, Merrill’s top management
believed that it also stood to benefit from its status as a relative outsider in the Japanese securities
industry. The Japanese retail investor had become quite disillusioned with the leading Japanese
securities firms.
2
3
This misunderstanding was reported in the Yomiuri Shimbun October 1998.
Yomiuri Newspaper Interview, October 1998.
SPRING 2003
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 3
This disillusionment stemmed in part from the depressed state of the stock market. As Exhibit 3
illustrates, as of 1998, the Japanese stock market had fluctuated for several years in a range
between roughly 40 percent and 60 percent of 1989 peak values. Among at least some investors,
hope of an eventual return to those peak values had long since faded. Obviously, this dimension of
investors’ disillusionment with the market would pose a challenge to Merrill Lynch as well as to its
competitors.
However, even during the boom years of the market, retail investors in the Japanese equivalent
of mutual funds (so-called investment trusts, pioneered in Japan by Nomura Securities) had failed
to benefit much from the market’s strong performance. One economic study found that Japanese
households that invested in investment trusts received an average rate of return of only 1.74
percent per year between 1981 and 1992—a period during which the market rate of return was
9.28 percent (Cai, Chan and Yamada 1997). Regardless of performance measures, Japanese
investment trusts underperformed their benchmark indices by between 3.6 percent and 10.8
percent per year in this period. Many of the management companies running investment trusts’
portfolios were subsidiaries of Japan’s securities companies and earned substantial commission
income for their corporate parents by churning their asset portfolios. The turnover ratio in these
investment trusts’ portfolios was more than twice the Tokyo market average. Japanese law
prevented investment trust managers from comparing their performance with rivals in
advertisements, making it harder for retail investors to identify investment trusts managed in the
interests of investors rather than the interests of the management companies’ corporate parents
(Cai, Chan and Yamada 1997). As the market plunged, the performance of investment trusts
worsened even further.
Finally, part of the Japanese investors’ disillusionment with securities firms stemmed from the
steady stream of financial scandals that had emerged since the market crash of the early 1990s.
These scandals included illegal payoffs to so-called sokaiya racketeers, illegal use of small-scale
investors’ funds to compensate large-scale investors for losses in the market (the tobashi scandals)
and scandals that involved the provision of “hot” stocks to politicians on a preferential basis.
Japanese bureaucrats charged with regulating the securities industry were also implicated in some
of these scandals, reinforcing the increasingly cynical view among retail investors that no one was
watching out for their interests.
Merrill’s management believed that this view created a ripe opportunity for a new entrant
unencumbered by the scandals, poor performance and questionable management of small
investors’ funds that had soured investors on the leading firms in Japan. Indeed, looking back to
Merrill’s own history in the United States, top management saw a parallel between the situation in
Japan in the 1990s and the situation in the United States in 1940, when the founders of Merrill
Lynch began their campaign to take “Wall Street to Main Street”—convincing a skeptical and
disillusioned American investing public to put its money into stocks again, but under a set of
principles and guidelines that safeguarded the interests of the small investor.
4. Anticipated Losses to Rejuvenate Image
The new enterprise in Japan was not expected to reap immediate benefits for Merrill Lynch. In fact,
Merrill’s long-term plan called for long-term positioning and pretax losses of U.S.$125 million for
SPRING 2003
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 4
1998 and U.S.$30 million in 1999 before finally breaking even in 2000. Management felt that the
break-even process could be accelerated by properly educating a population of savers who lacked
knowledge of and experience with most of the financial products Merrill had to offer.
This process of investor education would be carried out largely by finance professionals
inherited from Yamaichi—a firm whose track record in safeguarding the interests of small investors
had been essentially no better than its domestic competitors. However, Merrill’s management was
confident that its Merrill financial consultant training program would be able to impress Merrill’s
principles and safeguards firmly upon the minds of the former Yamaichi professionals. In turn,
these newly trained employees would be crucial in generating the return of lost assets by
convincing Japanese investors that—at last—there was a large retail brokerage that acted in their
interests. Merrill Lynch management addressed the issue of Yamaichi’s somewhat tarnished image
head-on in the Japanese media, and it used an aggressive campaign, stressing its new management,
to convince the public of the integrity of its newly formed firm.
The mistakes of Yamaichi were not the only potential image problem facing Merrill Lynch.
Critics of the firm pointed to another obstacle: overcoming the vulture image it had acquired in
some minds for taking over a blue-chip Japanese institution for nothing. There was a sentiment
among some business leaders and politicians that Merrill Lynch, which had negotiated for months
with Yamaichi about a possible acquisition or partnership, had deliberately stalled the process until
the firm collapsed, then took over some of the securities firm’s assets at a price far below their
intrinsic value. As a counterexample, these critics pointed to Salomon Smith Barney, which had not
only developed a joint venture with Nikko Securities, but also had injected U.S.$1 billion into its
new partner’s faltering operations.
These views were noted by Merrill management, but from its perspective a partnership with
Yamaichi along the lines of the Nikko Salomon Smith Barney venture would not have been viable.
The enormous but difficult-to-quantify off-balance-sheet liabilities of Yamaichi (which eventually
brought down the firm, in spite of loans from the Bank of Japan) were an enormous barrier to any
kind of partnership. In other words, the view of Yamaichi as an institution with high intrinsic value
may have reflected nationalistic sentiment, but it also showed a real ignorance of the depth of the
financial problems of the firm prior to its collapse. Furthermore, Merrill’s market research had
confirmed the depth of cynicism on the part of the Japanese investing public with respect to
domestic institutions. In the view of Merrill’s managers, the remaining brand equity of Yamaichi as
a going concern was minimal and worth little. Finally, as Merrill’s managers liked to point out, they
had effectively saved the jobs of about 3,000 former Yamaichi professionals—something no
Japanese institution had been prepared to do at the time.
5. The Environment
Most financial analysts applauded the move by Merrill Lynch to enter the retail securities business
in Japan on such a large scale, calculating that the original U.S.$0.50 per share investment would
someday pay handsome dividends. The following quote, taken from a Bernstein Research report
(1998), was a typical assessment from the analyst community:
“Merrill Lynch’s attempts to change the habits of retail investors and brokerage employees in
Japan are nothing short of Herculean. We project that Merrill’s retail effort will be successful. If the
SPRING 2003
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 5
gambit works, Merrill will emerge as the best and most completely positioned of the U.S. firms in
the region. Merrill will be the major company in the world, outside of the United States, in which it
will have three strong legs to the stool—institutional, retail, and asset management.”4
These predictions were contingent on a recovery by the Japanese stock market; therefore, it
was universally anticipated that Merrill Lynch’s earnings volatility would increase. What analysts
were unable to foresee was the extent to which adverse domestic macroeconomic conditions
would influence the new venture’s profitability. In early 1998, expert observers of the Japanese
economy were cautiously optimistic that a long-awaited turnaround was finally at hand. The
Japanese government finally seemed to be coming to terms with a banking crisis, and it also
seemed willing to do what was necessary to recapitalize and restructure the banks and use fiscal
stimulus to jump-start economic growth. The belief was widespread that, once economic growth
resumed, the stock market would also begin to rise. Surely a wealthy, modern, technologically
advanced economy like Japan would not languish forever.
On January 12, 1998, the Nikkei 225 weekly average stood at JPY 16,046 (far below the
bubble’s peak at JPY 39,000). Sufficient upward movement in the market was, as Patrick Hogan,
director of Japan Equities, stated, “crucial because market movement in either direction would
magnify the end result on our newly formed venture.” The year was, however, far from bullish,
and by year’s end the Nikkei had dropped to JPY 13,709, a 14.6 percent decline. As Exhibit 3
illustrates, after an aborted recovery in 1999–2000, the Japanese stock market resumed a downward
trend. By 2002, the value of the stock price index was at 20-year lows, with little hope of a
recovery in sight. The poor performance of the Japanese economy continued to weigh heavily on
the market. Nominal Japanese GDP continued to shrink; the economy recorded real growth only
because prices were falling even faster than nominal output.
Merrill had anticipated that its retail business in Japan would be based primarily on the sale of
Japanese securities, but Merrill’s global presence meant that the firm was in a position to offer its
clients access to a portfolio of foreign securities products—a portfolio much broader and more
sophisticated than anything offered by Merrill’s domestic rivals. The appeal of foreign securities,
though, was undercut by substantial foreign-exchange fluctuations. As illustrated by Exhibit 4, the
yen strengthened dramatically between 1998 and 2000. Investors who purchased foreign securities
in 1998 saw the yen value of the investment returns substantially reduced by yen appreciation.
In this challenging market environment, Merrill’s management found that its assets under
management were growing much more slowly than anticipated. In a nation where finance is
relationship-based, clients who had severed relationships with the old Yamaichi had, to Merrill’s
dismay, developed new ones. Clients who transferred funds to Merrill from brokerage accounts
with other domestic brokerage firms often received emotional telephone calls from their brokers
pressuring them to maintain their current relationships. In fact, the bulk of the posttakeover influx
of money was attributed to wealthy individuals who placed only a small portion of their estate in
Merrill Lynch’s accounts (Warburg Dillon Read 1998).
While the money arrived more slowly than anticipated, the fixed costs of maintaining such a
large-scale retail presence continued to grow. Foreign financial firms tended to offer employee
compensation packages that were more generous than those of domestic firms, and this was
4
Yomiuri Newspaper Interview, October 1998.
SPRING 2003
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 6
particularly true in the case of expatriates, who often received such benefits as housing and
schooling for dependents. Merrill relied heavily on domestic employees, but it still had to contend
with relatively high fixed costs. Losses of U.S.$125 million had been predicted early in the year, but
these were less than half the level of actual realized losses. On an annual basis, Merrill Lynch
continued to lose money throughout the entire life of the venture, with losses peaking in 2001 at
U.S.$500 million. Merrill Lynch also found that the much-heralded “Big Bang”5 was cutting into its
revenue stream: retail and institutional trade commissions had been cut in half, in many cases by
two-thirds. The loss of commission income made an increase in assets under management all the
more critical. Merrill Lynch shareholders and analysts began to voice concerns about the future
profitability of the current venture with its high fixed costs.
6. Retreat
Merrill Lynch was forced to make a major decision concerning how long it could incur such huge
losses. By 2001, a slowing U.S. economy, large declines in U.S. and European equity markets and
emerging signs of a global recession began to put pressure on the Merrill Lynch parent firm. A
shake-up of the firm’s top leadership in the United States coincided with a new campaign to cut
back on unprofitable operations and shrink staffing worldwide. The firm’s global leadership felt
that it was no longer in a position to make expensive bets on a long-term, but highly uncertain,
payoff. On January 9, 2002, Merrill Lynch announced that it was closing all but eight of its retail
branches; in July, it announced that it would maintain only three of these branches; by September,
it was down to two. In November, it was decided that the firm would merge the Japan and Hong
Kong operations. Merrill was in a full-scale retreat.
The company had taken a great gamble, but the gamble, unfortunately, did not pay off.
Adverse economic conditions in Japan posed enormous challenges for a new entrant into the
Japanese retail securities industry. For a short time, Merrill seemed to have reasonable prospects for
success in Japan as it witnessed a daily U.S.$600,000 increase in investments (Nikkei Online).
However, the euphoria began to wane as the increase in total assets under management quickly
stalled, peaking in 2000 at approximately JPY 1 trillion (U.S.$9.59 billion)—less than 5 percent of
the assets held by Yamaichi before its bankruptcy.
5
The Big Bang was a set of comprehensive reforms on Japan’s financial markets launched in November 1996, under the
administration of Prime Minister Ryutaro Hashimoto.
SPRING 2003
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 7
References
Bernstein Research Weekly Notes. 1998. Merrill Lynch Japan: Going for the big win. 25 September.
Cai, Jun, K. C. Chan and Takeshi Yamada. 1997. The performance of Japanese mutual funds.
Review of Financial Studies 10, no. 2: 237–73.
CIBC Oppenheimer Brokerage Report. 1998. Merrill Lynch investment conclusion—Strong buy. 28
April.
Credit Suisse First Boston Monthly Equity Research Report. 2002. Japanese securities brokers:
Irrational exuberance? March.
Donaldson, Lufkin & Jenrette Financial Services. 1998. Merrill Lynch: Striking while the iron is hot—
Merrill’s PC blitzes Japan. 13 February.
Monetary and Economic Department, comp. Bank For International Statements: BIS Paper. Japan,
October 2001.
Nikkei Interactive Online. Articles on Merrill Lynch and Yamaichi Securities
http://www.nni.nikkei.co.jp
Royama, Shoichi. 2000. The Big Bang in Japanese securities markets. In Crisis and Change in the
Japanese Financial System, edited by T. Hoshi and H. Patrick. Boston : Kluwer.
Warburg Dillon Read Securities Industry Report. 1998. Report on Merrill Lynch. 5 September.
Yomiuri Shimbun Online. Http://www.yomiuri.co.jp. October 1998.
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CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 8
Exhibit 1
End of
Year
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Financial Assets in Japan / Allocation across Asset Classes, 1964–98
Total Financial
Assets
(100 Million
Yen)
Cash and
Deposits
(%)
Trust
Accounts
(%)
Insurance
and
Pension
(%)
Securities
Investment
Trust
(%)
268,923
312,634
368,622
427,524
511,181
627,386
716,600
855,700
1,113,458
1,277,312
1,482,031
1,784,637
2,086,751
2,383,784
2,761,873
3,098,572
3,440,324
3,859,283
4,277,128
4,776,162
5,267,657
5,721,344
6,422,768
6,963,165
7,857,442
8,934,421
9,246,119
9,809,059
10,178,181
10,751,453
11,309,336
11,816,068
12,091,513
12,293,513
13,056,563
59.4
60.1
60.8
62.6
61.8
60.8
62.6
62.0
60.1
64.7
65.5
64.3
64.2
64.5
64.0
64.4
64.3
63.8
62.8
60.7
59.2
58.5
56.1
55.7
52.7
51.7
53.9
54.9
55.4
55.1
55.3
55.7
56.9
58.8
55.2
4.1
4.6
5.0
5.4
5.5
5.3
5.6
5.6
5.4
5.6
5.7
5.8
6.0
6.2
6.0
6.1
6.0
6.3
6.6
6.7
6.8
6.9
6.5
6.3
6.4
6.3
7.0
7.1
7.4
7.3
7.1
6.7
6.4
5.9
2.8
11.5
11.6
11.8
12.1
12.2
11.9
12.6
12.7
11.6
11.9
12.2
12.0
12.1
12.3
12.3
12.7
13.2
13.5
13.9
14.2
14.7
15.5
16.3
17.6
18.6
19.2
21.0
21.7
23.0
24.0
24.7
24.8
25.1
25.6
27.8
4.6
3.4
2.6
2.0
1.6
1.6
1.7
1.7
1.5
1.6
1.8
1.7
1.7
1.8
1.8
1.7
1.5
1.6
1.8
2.5
2.9
3.0
3.6
4.7
4.9
4.6
4.2
3.5
3.7
3.3
2.8
2.8
2.6
2.3
2.1
Stocks
(%)
Other
Securities
(%)
17.1
16.5
15.1
12.6
13.5
14.9
11.8
11.8
15.5
10.2
8.9
9.9
9.0
7.8
8.3
7.7
7.4
7.1
6.8
7.9
8.5
8.5
10.9
10.0
12.6
13.9
9.0
8.1
6.2
6.6
6.6
6.8
6.1
4.8
7.2
3.3
3.8
4.7
5.3
5.4
5.5
5.7
6.2
5.8
6.0
5.9
6.3
7.0
7.4
7.6
7.5
7.6
7.8
8.0
8.0
7.9
7.6
6.6
5.6
4.8
4.3
4.9
4.7
4.3
3.7
3.6
3.2
2.9
2.5
5.0
Source of original data: Bank of Japan, Flow of Funds Statistics.
Note: 1998 numbers are based on new flow-of-funds statistics that BOJ started to publish in 1999 and are not exactly
comparable to the earlier figures. For example, trust accounts held by pension funds on behalf of households were
classified in “Trusts” in the old statistics but in “Insurance and Pension” in the new statistics.
Taken from Royama, 2000.
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CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 9
Exhibit 2 Japan’s Pension Market, 1998
Japan's Pension Market ($ billions)
World's # 2 Market; 10% growth rate
510
700
PensionW elfare
Service
Employee
Pens ion
Fund s
270
250
Quali fied
Pl ans
Exhibit 3 Stock Price and Turnover in Japan, 1972–2002
45000
40000
TSE peaks, 1989
Ronald Reagan
elected President, 1980
200000
Junichiro Koizumi
elected PM, 2001
Plaza Accord, 1985
160000
35000
30000
25000
Japanese financial
crisis of Nov. 1997
Nikkei stock price index
20000
120000
100000
60000
10000
0
140000
80000
15000
5000
180000
40000
Turnover (transaction volume)
20000
0
Source: Bank of Japan. The left axis tracks the price of the Nikkei 225 stock price index in yen. The right axis tracks the
volume of turnover on the TSE, in units of 10,000 shares.
SPRING 2003
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 10
Exhibit 4 Movements in the Real Effective Exchange Rate of the Japanese Yen, 1972–2002
175
Yen peaks against the dollar, 1995
165
Plaza Accord
155
First oil shock
145
Japan's banking crisis, 1997
Second oil shock
135
125
115
105
95
85
2002
2001
2001
2000
1999
1999
1998
1997
1997
1996
1995
1995
1994
1993
1993
1992
1991
1991
1990
1989
1989
1988
1987
1987
1986
1985
1985
1984
1983
1983
1982
1981
1981
1980
1979
1979
1978
1977
1977
1976
1975
1975
1974
1973
1973
75
Source: Bank of Japan. The real effective exchange rate is a weighted average of the yen’s value against 25 major currencies.
SPRING 2003
CHAZEN WEB JOURNAL OF INTERNATIONAL BUSINESS 11