How Did Reciprocity Influence Financial Liberalization? The Role of Securities Companies in Japan’s Financial System Transformation

This study aims to resolve the confusion in previous research regarding changes in the relationship between banks and companies in Japan by answering the question, “What role did securities companies play in Japan’s financial market in the 1980s?” Although Masahiko Aoki’s works have analyzed how these firms mediate corporate finance (e.g., Aoki and Patrick 1995; Aoki and Saxonhouse 2000; Aoki, Jackson, and Miyajima 2007), many subsequent studies, citing Aoki, have focused mainly on banks. This narrowed perspective led to seemingly contradictory conclusions about the strength of main bank relationships in the 1990s (e.g., Witt and Redding 2014 vs. Boyer, Uemura, and Isogai 2012). Using new evidence from archival records, government documents, and specialized publications, this study applied the concepts of “reciprocity between industries” and “reciprocity between nations” to demonstrate how scope-of-business regulations for banks and securities were gradually relaxed. Key findings reveal that securities companies, acting as intermediaries for bond issuance, enabled Japanese corporations to shift temporarily from bank loans to direct financing, weakening banks’ disciplinary power. However, the collapse of Japan’s bubble economy and subsequent deregulation led to renewed but altered bank–corporate relationships.