For most of the postwar period, Japan's financial institutions operated in a severely regulated environment: most interest rates were controlled, the type of business these institutions could engage in was narrowly circumscribed, and few international transactions were possible. Beginning in the 1970s, these controls began to loosen, and financial institutions rapidly expanded their international activities. By the end of the 1980s, they were major international players.
The major international players were "city" banks (the thirteen largest banks in Japan, which operated nationwide branches), investment houses, and life insurance companies, which invested heavily in pension funds abroad in the 1980s (see The Financial System , ch. 4). In 1990 the five largest banks in the world, measured by total assets, were Japanese banks. These banks opened branches abroad, acquired existing foreign banks, and became engaged in new activities, such as underwriting Euro-yen bond issues. The investment houses also increased overseas activities, especially participating in the United States Treasury bond market (where as much as 25 to 30 percent of each new issue was purchased by Japanese investors in the late 1980s). The life insurance companies moved heavily into foreign investments as deregulation allowed them to do so and as their resources increased through the spread of fully funded pension funds.
As of March 1989, the five largest city banks in Japan (in order of total fund volume) were Dai-Ichi Kangyo Bank, Sumitomo Bank, Fuji Bank, Mitsubishi Bank, and Sanwa Bank. The four largest investment houses, which dominated the securities business, were Nomura, Daiwa, Nikko, and Yamaichi.
Besides these private institutions, there are a number of government-owned financial institutions. Of these, the Japan Export-Import Bank (Exim Bank) is the only one with an international focus. The Exim Bank provides financing for trade between Japan and developing countries, performing the function of export-import banks run by governments in other countries (including the United States), although its participation is possibly greater.
As Japan became a more important international financial power, Tokyo became a world financial center. In April 1989, the average daily volume of transactions in the Tokyo foreign exchange market was US$115 billion, not far behind the US$129 billion in New York. The Tokyo Securities and Stock Exchange also rivaled the New York Stock Exchange in daily volume, overtaking New York in 1988 to become the world's largest stock exchange in terms of the combined market value of outstanding shares and capitalization.
Data as of January 1994