Harvard Law School’s Program on International Financial Systems (PIFS), together with The International House of Japan, co-hosted the 10th annual Japan-U.S. Symposium titled “Building the Financial System of the 21st Century: An Agenda for Japan and the United States” at HLS over the weekend of September 14th-16th.

The Symposium, started a decade ago by HLS Professor Hal Scott, director of PIFS, offers 100 influential invitees—half from Japan and half from U.S.—the opportunity to gather for off-the-record discussions.

“The symposium has had a significant influence on Japanese financial reform over the last 10 years because it is attended by key Japanese policy makers. Its reports have been used to support reform, and our discussions have changed attitudes,” said Scott. “The Japanese care deeply what their major economic partner thinks and the symposium has allowed U.S. treasury officials to make suggestions that can be debated and vetted by a wide group of experts from both sides of the Pacific.”

Each year, three topics relevant to both countries are discussed in detail. This year’s topics were: The competitiveness of capital markets in Japan and the U.S.; financial regulatory enforcement systems in Japan and the U.S.; and retrospective views on 10 years of the symposium and of financial reform in Japan and the U.S.

Scott noted that 2007 was the first year since the symposium began 10 years ago that problems in the U.S. are worse than in Japan—far different from 1998, when Japan was plagued by recession, stagnation, disinflation, nonperforming loans, large government deficits, and various corporate scandals. Today, Japan, though not without problems, has stabilized, whereas the U.S. is facing troubles reflective of those that plagued Japan 10 years ago—such as corporate scandals and, most recently, the sub-prime lending crisis.           Looking ahead, symposium participants discussed a number of challenges. How will Japanese companies fare vis a vis China and India if Japan fails to increase productivity? Is the current regulatory framework sufficient for the world of the 21st century? How do different legal systems affect financial systems?  Will Japan’s financial markets become more dominant in the coming decade, and what barriers would have to be overcome to achieve this goal?

At least one study has concluded that the barriers to Japan becoming a global financial center are 30 percent technical, 30 percent regulatory and legal, and 40 percent cultural. Panelists said the main challenge for the Japanese is to keep their heads in the game now that crisis has passed, resist complacency, and continue the process of reform.

Several presenters were concerned that, particularly in the political arena, the conditions were not right for reform, due to a lack of will and focus. Others were more optimistic, saying the lack of political will could be overcome by implementing a structure for better communication between the government and private sectors.