Transformation of the Regulatory Model

As a result of having intentionally circumscribed access to legal processes, the Japanese legal reality was until recently characterized by an extremely low volume of cases adjudicated and a small legal profession, which was unusual for a modern industrialized nation. This correlated with a particular bureaucratically controlled approach to regulating and monitoring economic activity. However, the prolonged structurally-based economic crisis of the 1990s made it clear that this long-successful model of economic regulation had reached its limits. The pronounced bureaucratic paternalism which had long dominated in Japan had shown itself to be no match for the dynamics of a free market. As it became clear that only a regulatory and administrative paradigm shift could provide a remedy, a fascinating array of de-regulatory reforms as well as some “re-regulatory” reforms were introduced across nearly all legal fields. The reforms’ stated goal was and remains the creation of a transparent regime of market-oriented regulations that prioritises market forces over bureaucratic control and that can thrive amidst competing international regulatory schemes.

At the heart of the reforms is a fundamental systemic transformation which replaces a consensus-oriented, secretive, discretionary and bureaucratically vested model of economic guidance with a rule-based regulatory model that provides market participants with clear rules of conduct whose observance is monitored and whose violations are sanctioned after they occur. This represents a paradigm shift from ex ante monitoring, in which market entry is dependent on governmental approval, to ex post supervision, in which market behaviour is reviewed by the courts. Though the reform process remains underway, those reforms that have already been implemented have essentially turned the previous regulatory structure on its head. At the same time, one can observe a general effort to more strongly control the actions of public agencies in Japan through specific legal provisions and to imbue the administrative process with a corresponding legal character, that is, more transparency and less discretion.

This change makes an expeditious expansion of the judiciary imperative since court-based, ex post supervision requires effective judicial institutions. In the Japanese context, this primarily means a dramatic increase in the number of attorneys and judges. Consequently, Japan has recently enacted a fundamental reform of its legal education system with the goal of significantly raising the number of qualified and practice-oriented jurists.