Financial Liberalization and Reform of Japan&rsquo;s Ministry of Finance: Implications for Japanese Developmental State

Dennis  Trinidad,

Financial Liberalization and Reform of Japan’s Ministry of Finance: Implications for Japanese Developmental State

Discipline: Governance

Abstract:

This study analyzes the impact of government reforms on the Japanese developmental state. In doing so, it examines the case of Japan’s financial liberalization after the 1997 Asian financial crisis and its effect on the bureaucratic power of the Ministry of Finance (MOF). The new politics that emerged in the 1990s provided the backdrop of the reform movement. Along with the Ministry of Economy, Trade and Industry (METI), MOF had played a crucial role in Japan’s catch-up industrialization by directing capital to favored industries and protecting weak players. The paper contends that by removing policy instruments like preferential credit and bank supervision that allowed MOF to intervene in the financial sector, the reform affected both MOF’s intervening capacity and financial policy network which formed the structural basis of ‘money politics’ and institutional ‘stickiness’ of Japan’s developmental state. Even so, the reform was not sufficient to completely dismantle it.