1. Securities Houses
Official trading in stocks is carried out exclusively among exchange members. As o f April, 1991 there were 124 member firms, all o f them securities houses (shaken gaisha). Only they can take part in stock trading at the TSE. There are 272 securities houses in all.1
There are three classes o f securities houses. The elite group is made o f the so-called "Big Four"
(yondai shokeriy. these are the brokerage houses Nomura, Daiwa, Nikko and Yamaichi. These four firms carry out over 40% o f Japanese stock trading. Nomura alone has more assets than the two largest American financial institutions, Citicorp and Merill Lynch, combined.
The second group takes in the ten next-largest securities houses, while all the others fall into the third group. The last two "classes" o f medium and small securities houses are referred to as chusho shoken.
Securities houses are interested above all in returns from fixed commissions; in 1990 these represented 77% o f operating revenues.* 2 Business in commissions is comprised essentially of trading in securities as well as transactions from stock emissions.
2. Individual Investors
The share o f individuals who own stocks may not appear, at first glance, impressive: but it constitutes the largest share of tradable stock holdings. As was seen earlier, the shares that are held by corporations and banks are for the most part "locked-away" and unavailable for trading.
For this reason individual investors have a relatively large amount o f influence on daily trading.
Individual investors are counted among the instable investors who sell when prices rise in an effort to make short-term speculative profits.
As of April, 1991, Tökyö Shöken Toriliikijo Chösabu 1991b, p. 101. These consititute market partipants in the truest sense of the word, since all other groups of investors must have them carry out their trading.
Tökyö Shöken Torihikijo Chösabu 1991a: p. 281.
2
3. The Financial Institutions
a. The Banks
Japanese banking institutions can be divided into the following categories: Trade Banks, Long
term Credit Banks, Trust Banks, Savings and Loan Banks (sogo ginko), and foreign banks along with other specialized financial institutions.
Classified as Trade Banks are the 13 large City Banks and the 64 small Regional Banks.
Attention should be paid to the fact that the six largest City Banks consititute simultaneously the core o f the keiretsu Sumitomo, Mitsubishi, Mitsui Taiyö Kobe, Dai-Ichi Kangyo, Sanwa and Fuji.
These six banks are all among the thirteen largest corporations in the world (in terms of market value as o f May, 1991)3 and are naturally among the world's nine largest banks as well.4 The thirteen City Banks have a capitalization of 500 billion dollars, while the fifty largest American financial institutes can claim a corresponding figure o f only 95 billion dollars.
The three Long-term Credit Banks were founded in the post-war period by the government as a means o f financing growth-oriented industrial corporations.5
It is the duty of Trust Banks to manage the assets of pension funds, investment trusts, etc.
Banks hold stocks primarily based on strategic considerations. As stable share-holders the banks can be sure that their stock holdings provide them with influence over corporations. The marked increase in recent years o f bank stock-holdings is not least a reaction to corporations' substitution o f equity capital for borrowed capital, a pattern which threatened to diminish banks' influence.
b. The Insurance Companies
Through their ownership o f approximately 16% o f all outstanding stocks in 1990, insurance companies constituted one of the most important groups of investors. Three of the five largest insurance companies in the world are found in Japan. The largest, Nippon Life, is the largest single investor on the Tokyo Exchange; it is the largest stock-holder in more than 40% of all Japanese exchange-listed corporations with a share up to the legal limit o f 10%. Matsumoto remarks that: "Given the enormous assets that they command, Japanese life insurance companies
Business Week: July 22,1991
The Banker, July 1992, p. 66. On April 1,1990 Mitsui and Taiyö Kobe merged to form Mitsui Taiyö Köbe Bank. It has since been renamed Sakura Bank.
At the head of the three Long-term Credit Banks stands the Industrial Bank of Japan, "w ithout doubt, the m o st pow erful com pany in Japan" (Zielinski/Holloway 1991: p. 1). Zielinski/Holloway
continue: "Its m en are directors a t 103 p u b licly ow ned companies. I t is the biggest lender to listed Japanese com panies a n d is a m ajor shareholder in more th a n 600 o f them , ..."(ibid) II
are now the largest and most influential institutional investors in Japan."6 Insurance companies, which in Japan can be divided into Life (seimei hoken gaisha) and Non-Life (songai hoken gaisha) Insurance Companies, are as a rule members o f keiretsu and assume an important function as a providor of long-term capital for the other corporations of the network.7
A key role in the management of toA£w-funds falls to Life Insurance Companies. The position of Non-Life Insurance Companies, which have traditionally been weaker than Life Insurers, has recently been appraised upwards based on a recent influx o f money from home- and auto- insurance policies (a booming sector).
Similarly to the case o f banks, strategic considerations have a high priority in the investment policies of Insurance Companies. Zielinski/Holloway continue that "From a company's viewpoint, insurers make ideal shareholders because they almost never have any reason to sell. "8
For a long time heavy investment in U.S. Government Bonds was favored, which during the Yen's appreciation led to losses reaching to four trillion Yen.
c. Investment Trusts
There are eleven Investment Trusts (tdshi shintaku) in Japan, each a branche o f a securities house.
They are nonetheless rank among the largest institutional investors. Japanese Investment Trusts, all o f which are transacted on a contractual basis, can be divided up into three groups. Funds of Capital Investment Companies (unit type, tanigata tdshi shintaku) have a fixed stock of investment capital which is offered to the public via ownership certificates (at 10,000 Yen a share). Open funds (open type, tsuikagata tdshi shintaku), on the contrary, issue securities on a regular basis. The third class o f trusts is made up of foreign Funds. It is noteworthy that these Funds cannot administer their money themselves; rather, they must (at least formally) place it in the charge o f a Trust Bank.
The influence o f Investment Trusts on the market is substantial, because they sell when prices rise and buy when prices fall. The results o f the Investment Trusts can without exageration be described as miserable. By virtue o f their ties to securities houses, the Trusts must take over issuances that the parent firm could not otherwise get rid of. The notion that Investment Trusts are the "dumping ground fo r ill-advised investments" o f brokerage firms is widely held.9
Matsumoto 1988: p. 105.
Bronte 1982: p. 101.
Zielinski/Holloway 1991, p. 46
Bronte 1982, p. 85 as well as Viner 1989, p. 59.
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d. Securities - Financing Companies
In 1950 nine Securities - Financing Companies were founded with the aim o f bringing life to the securities market. Six years later they were transformed into three corporations which exist to the present day (Japan Securities Finance Company, Osaka Securities Finance Company and Chübu Securities Finance Company).
These institutions, which exist in this form only in Japan, provide loans to members o f the stock exchange, to securities houses as well as their customers.10 11
As the refinancer o f last resort the Securities-Financing Companies perform a key function for the securities houses.
4. Business Corporations
Business corporations held approximately 30% o f outstanding shares in 1990.11 They are counted as stable investors, that is to say, their stock holding reflects strategic as opposed to portfolio considerations. The recent increase in corporations' cross-share holdings, and thereby also their stock ownership, was intended among other things as protection against hostile takeovers.
5. The Government
Both the central as well as the local governments in Japan hold only a miniscule share o f stocks (under 1%). However, the government in Tokyo exercises a decisive influence over the stock market through the Ministry o f Finance (ökurasho). The latter is charged with the duties of the Securities and Exchange Commission in the USA.
6. Foreigners
Foreigners hold only a very small (approximately 4%) share o f stocks listed on Japanese exchanges. They are considered unstable investors out to make speculative profits. "If individual investors are unreliable as fa r as Japanese firm s are concerned, foreign investors are an outright threat."12 This appraisal is reflected as well in the regulation o f foreignors' ownership of Japanese stocks. Share-holding in twenty-one "strategic" exchange-listed corporations is limited or even prohibited entirely, as is for example the case for telephone companies.
10 Nishikata 1991, p. 258.
11 Tokyo Shoken Torihikijo Chosabu 1991c, p. 60 12 Zielinski/Holloway 1991, p. 55.
IV
In 1985 a securities license was for the first time granted to a foreign bank: Deutsche Bank Capital Markets. (However, by acquiring an interest in a Japanese corporation Citicorp had two years previously bought access to the Japanese securities market.)
7. The Pension Funds (nenkin kikiri)
Because they are administered by Trust Banks and Life Insurance Companies, pension funds are not as a rule identified as market participants. However, they do constitute an increasingly important force on the Japanese stock market.
Demographic changes in Japan, whose society is aging much faster that o f the USA, have driven the Pension Funds' rapid growth. The outcome is a large quantity o f money available that can be placed on the securities markets.