The past 12 months have been a struggle for most markets, and Japan's has not escaped. In August, the government unveiled a ¥11,500 billion ($105.8 billion) programme to stimulate the flagging economy, a move the government reinforced in October by easing restrictions on share buybacks. Until the end of 2008, companies are allowed to buy 100% of their stock in one day, rather than 25% of the average trading volume calculated over the previous four weeks.
Buyback restrictions were also lifted between March 2003 and June 2006 when the Nikkei experienced a similar slump. Some believe that a long relaxation of these rules is again needed. As one lawyer commented following the October announcement: "We need more than three months because the market is in unprecedented times." However, at the time of going to press, the government still planned to reinstate restrictions from January 1 2009.
But the tumbling markets have not been the only drivers of change. In June, Japan enacted an amendment to the Financial Instruments and Exchange Law. Previously foreign banks were restricted in the types of services they could offer in Japan. But as Masayuki Watanabe of Anderson Mori & Tomotsune discusses in this supplement, the amendment will allow foreign banks with a Japanese branch to offer more intermediary services. It could however limit the activities of non-bank money lenders.
Despite positive changes to facilitate foreign banks operating in Japan, defensive measures against foreign companies looking to make acquisitions in Japan are still the norm. As Shintaro Takai and Keiji Tonomura of Nagashima Ohno & Tsunematsu argue in their article on hostile takeovers, this type of bid only became a serious concern at the beginning of the 21st century, but defence methods are becoming more creative.
Japan as a nation has taken action this year to protect its companies – particularly financial institutions – from short sellers. In October, it banned naked short selling and demanded that short sellers disclose positions of more than 0.25% on a daily rather than monthly basis. As lawyers at IFLR's Asia Capital Markets Forum explained, these actions caused income generated by short selling to drop from 21% in mid-October, to 18% by the end of October, to 14% by mid-November.
But despite the government's measures to free up financing for Japanese companies by allowing greater share buybacks, and protect shares on the stock exchange by banning short selling, Japan is part of the worldwide recession. As a result, companies are getting into distress. The review of insolvency procedures in Japan provided by Saori Hanada, Miki Ono and Eiichiro Hata of Atsumi & Partners is a must read for all.
Rachel Evans, Asia editor