Amendment of the Foreign Exchange and Foreign Trade Control Law

May 1997

Ministry of International Trade and Industry

(1) To ensure that the Japanese financial market becomes an international market that is free and competitive to the same degree as the New York and London markets, a reform of the entire financial system is being carried out. (Japanese version of "Big Bang")

(2) The amendment of the Foreign Exchange and Foreign Trade Control Law is the "front-runner" to the reform of the financial system.

(1) Liberalization of domestic and cross-border foreign exchange transactions

The abolition of the system of prior permission and notification for foreign exchange transactions not conducted through the banks (authorized foreignexchange banks).

¡Ý Examples of transactions for which permission has previously been required: ¡Ý

¡û The opening of deposit accounts with overseas financial institutions to settle payments for exports and imports.

¡û The making of loans, investments and debt guarantees, to overseas entities.

¡û The netting of foreign-currency-denominated claims and obligations with overseas entities.

¡û The trading of foreign currencies and making of foreign-currency futures contracts with any entity. etc.

(2) Complete liberalization of foreign exchange business

The system of authorized foreign exchange banks and the money-exchanger system, which originated at the time when foreign currency was very precious, and has remained an important channel for foreign exchange control, will be abolished.

(3) Establishment of ex-post facto reporting system

For such purposes as the compilation of balance of payments statistics, anex-post facto reporting system for domestic and overseas capital transactions will be established.

(1) Transactions such as those illustrated in item 2.(1) above will be able to be conducted without permission, thereby reducing labor and cost.

(2) Foreign exchange commissions will be reduced.

(3) As illustrated above, the reform of the foreign exchange system will help to reduce the cost of overseas business for the industrial sector, and to maintain international competitiveness. At the same time, by bringing about an increase in financial transactions, it should contribute to making the financial market much sophisticate in quality and quantity.

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£±. Average Daily Trading Volume on the World's Major foreign Exchange Markets (Unit:US$ billion)

Source: Bank for International Settlements (BIS), Central Bank Survey of Foreign and Derivatives Market Activity (Triennial).

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£². Ratio to GDP of Financial and Insurance Service Business in Japan, the United States, and the United Kingdom (Unit:%)

Source: Economic Planning Agency, Annual Report on National Accounts, and others.

¡ö Figure for 1993.