The Journal The Authority on Global Business in Japan

Financial Services Agency
Previous manual to be abolished in conversion

The Financial Services Agency (FSA) has completed guidelines that can be expected to impact future thinking on inspections and management of financial institutions.

Use of the so-called “Financial Inspection Manual” for conducting checks of opera­tional conditions is to be dropped by the end of FY2018. The highly standard­ized manual, whose initial purpose was to deal with bad debts incurred following the collapse of the economic bubble of the early 1990s, is to be changed. Instead, the agency plans to remake itself into a “financial nurturing agency.” This will be done through adoption of a system encouraging improvements of specific issues affecting each respective institution through two-way dialogue.

The agency was spurred to revise its operations through growing awareness that its system of emphasizing financial inspections was outdated. The imposing of strict assessment on the leverage of assets led to concerns that the FSA was turning essentially into a “fiscal disposal agency.” Even after the first stage of measures to clear bad debt was completed, the agency was criticized for its stringent controls on regional banks, which stood in the way of revitalizing local economies.

As fiscal demand continues to decline due to factors such as the low birthrate and aging population, and in the midst of shrinking profit margins due to deregu­latory activities by the Bank of Japan, a source in the government pointed out, “If we adhere to the business model in use up to now, regional banks will have no future.”

Ministry of Internal Affairs and Communications
Rivals exasperated by Rakuten’s mobile efforts

Rakuten, Inc. has made headlines with announcements of its intention to enter the mobile communications market as Japan’s fourth major mobile carrier. The company apparently desires to avoid a repeat of what happened when former Chairman Sachio Semmoto of eAccess was forced to sell off a large number of eAccess assets, leading to the company becoming a wholly owned subsidiary of SoftBank Group Corp. in 2013.

As opposed to eAccess being obliged to set up its own base stations to become compatible with SoftBank and KDDI, Rakuten Chairman and CEO Hiroshi Mikitani intends to keep outlays for equipment as low as possible, instead gaining access to NTT DoCoMo circuits and base stations via inexpensive leasing arrange­ments. It is hoped that this would enable the company to offer inexpensive services while chipping away at the shares of the three major carriers.

At present, Rakuten’s mobile virtual network operator (MVNO) provides services via circuits leased from major carriers. Last September, it had deployed its lineup of Freetel smartphone models and acquired another MVNO company: Plus One Marketing. But the MVNO market left Rakuten with much to be desired in terms of connection speeds and quality of service, and more or less having reached the limits of its growth.

In summer 2017, rumors circulated that Rakuten was getting ready to jump into the mobile market as the fourth carrier. Mikitani, who heads the Japan Association of New Economy, is known to be close to Prime Minister Shinzo Abe. According to a member of the Diet’s House of Councillors, “Mikitani is requesting an allocation of frequencies from the government.”

Moreover, he expressed surprise that Hiroo Unoura, CEO of Nippon Telegraph and Telephone Corporation, was involved. Unoura had previously expressed his approval of shared use of base stations supporting the next-generation 5G mobile technology and had made such appeals to KDDI and SoftBank.

For Rakuten, which could not possibly keep up with the investment in equipment by the Big Three, this was like a favorable tailwind. If Rakuten were able to obtain a bandwidth allocation from the Ministry of General Affairs and Communications, it would have access to a nationwide network with minimal equipment costs.

The sudden news that the ministry would allocate bandwidth to Rakuten seems almost like an act of charity and has left NTT DoCoMo, which leases its circuits to Rakuten, feeling exasperated.

Keizaikai magazine