ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Liberalisation of Japanese Financial Markets

THE momentum of the wave of innovation, liberalisation and globalisation of financial markets, which began in the early 80s, continues unabated even today. Normally innovative impulses and techniques originate in the relatively free domestic markets of the US and later spread to the eurocurrency markets and to the domestic markets of the major countries. In some respects the recent financial developments have improved the facilities by offering a broad range of financial instruments and also hedging facilities both to borrowers and' lenders to protect against exchange and interest rate volatility. But the mortality rate of most financial instruments is so high that it raises the question whether most of them have been actually required or whether they are just fads. Besides, what is perhaps inadequately recognised is that the very features of the current financial markets themselves contribute greatly to the violent fluctuations in interest and exchange rates by promoting massive capital flows between countries. Today the capital flows and the fund and foreign exchange transactions that are taking place in the markets are far beyond the genuine requirements of world trade and investments. The financial markets have assumed a life of their own. Genuine financial services for trade and production activities have been marginalised, although the raison d'etre of the financial markets and financial intermediation is to act as a handmaiden of production. In the present conditions, internationalisation and liberalisation of domestic financial markets have the potential danger of increasing the instability of both the financial and the real sectors of the economy.

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