Make Japanese Law Transparent



Tetsuo Morishita
Professor of Law, Sophia University


An entanglement of statutory law, case law, and guidelines of the financial authorities make up the legal order of financial law in Japan.

Legal issues in regards to financial transactions in Japan can be generally classified into two major fields: public law issues, consisting of regulations, supervision of parties involved in financial transactions, inter alia; and private law issues, consisting of matters such as relationships of rights and obligations between parties of financial transactions. Being of continental [civil] law origin, the foundation of the legal order in Japan is based on statutory law. In regards to private law issues however, this statutory law is comprised solely of general provisions, therefore, in practice, case law plays a vital role. As for public law issues on the other hand, case law is scarce, therefore, in practice, the use of manuals created by the authorities for their administrative purposes (guidelines for their inspectors, clerks, inter alia) play an important role.



Examples of public law issues include the conditions and activities for parties involved in the financial industry, supervision/inspection of financial authorities, maintenance of fairness and order in the financial market, and protection of the consumer. The Japanese financial industry can be broken down into four major arenas: the banking industry, the securities industry, the insurance industry, and all other financial industries. Statutory law for these industries, i.e., Banking Law, Securities and Exchange Law, and Insurance Business Law, determine rules for the type of duties that can be preformed by merchants, conditions for issuing licenses/permits, and rules on supervision/inspection. Moreover, with the establishment of the new Financial Instruments and Exchange Law of June 2004, the legal system in the securities industry has been reformed to comprehend financial instruments other than securities, such as investment in funds.

The Financial Services Agency, who are the financial authorities of Japan, have comprehensive jurisdiction for all financial industries. The Supervisory Beaureau and the Inspection Beaureau are both located within the Financial Services Agency. The Supervisory Beaureau is responsible for the creation and release of operational guidelines, and the Inspection Beaureau is responsible for the creation and release of inspection manuals for the authorities and their administrative purposes. Although these manuals are not legally binding, in practice they do act as rules to be observed by merchants. Moreover, a situation in which a financial merchant takes legal action towards the judgment of the Supervisory Beaureau Department is almost unimaginable in Japan, making the administration of justice for legal issues that arise in regards to financial supervision almost non-existent.

As for the maintenance of fairness and order in the financial market, the Financial Instruments and Exchange Law stipulates rules, inter alia, in regards to the maintenance of order in the securities market, and the Antitrust Law stipulates rules in regards to the protection of competition and fair trade.



With the exception of laws such as the Law on Sales of Financial Products, which provides special rules for consumer protection, laws such as the Civil Code, Commercial Code, Code of Civil Procedure, the Japanese Bankruptcy Act, and the Civil Rehabilitation Law, which provide substantive and general procedural rules in regards to the relationship of rights and obligations between private individuals, are applied to private law issues that arise in financial trade. Because the majority of these legal rules were not created with financial trade in mind, problems arise in how these enacted laws should be interpreted in relation to individual financial trade. Judicial precedent provides as a guideline on how these laws should be interpreted in practice. Although not legally binding, judges do take precedent, especially a Supreme Court decision, into serious consideration, thus making understanding of precedent essential to practice.

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