Max Planck Society

Max Planck Institute for Comparative and International Private Law

Media Information
Online version Handwörterbuch des Europäischen Privatrechts


Project Leader

Harald Baum
baum@mpipriv.de

 

Project Staff

Anna Katharina Suzuki-Klasen
suzuki-klasen@mpipriv.de

 

 

 

 

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Research into Japanese Law

The Hamburg Max Planck Institute for Comparative and International Private Law is deeply involved with the comparative study of Japanese law and foreign law research, focusing on civil, commercial and economic law. In light of the many influences which have shaped the development of modern Japanese law, it is a decidedly mixed legal system and holds particular fascination from a comparative law perspective.

The Role of Japan and its Law

Japan numbers among the leading economic powers of the world and plays a central political role in Asia. For a considerable period of time Japan was the only non-western nation that stood on an equal economic and political level as its industrialised western counterparts, managing this while nonetheless retaining its historic and cultural contours. Japan stands as the only Asian country that has for more than a century possessed a modern, functionally capable legal system of a western style that is – now for decades – firmly embedded in a democratically constituted society. The continuing significance of Japan and, thus, the implicit significance of its law are beyond question. The projection of Japanese law in other East Asian nations was and remains of considerable consequence. Modern Japanese law comprises a mixed legal system. As a result of this multi-layered history of legal reception, today one finds in Japan a mosaic pieced together with legal institutes from various legal systems, not least the German regime which, for its part, is grounded in a different legal tradition and legal mentality (Legal Development). 2011 witnessed the 150th anniversary of the friendly and historically unburdened relationship between Japan and Germany (originally Prussia). This relationship was from its very beginning moulded also by legal exchange. In addition to further cultivating this tradition, the chance should be seized to deepen German involvement in the Asian region – while acting in a legal cooperation with its Japanese partner – and respond to the future challenges which stem from the continually growing political and economic significance of Asia.

Legal Development in Japan

Modern Japanese law stands as a multi-layered example of a mixed legal system. The early history of legal development in Japan reveals religiously grounded law whose origins extend to the early cultures of the South Pacific. Already at this early phase, namely in the first centuries of the Common Era, a series of characteristic and still visible elements of Japanese legal conception emerge. Around the end of the 6th century, a comprehensive transfer of Chinese law and Chinese state structures is instituted that spans over the 7th and 8th century. The substantial cultural differences between Japan and China lead to a significant assimilation of Confucian notions of order into the Japanese reality. A second substantial wave of legal transfer, European law in this instance, begins following the watershed of the Meiji Restoration of 1868. This leads to an opening of the country and a systematic adoption of Western institutions and represents a historic turning point in the development of Japan. In an unparalleled cultural achievement, within merely three decades Japan is able to construct a modern, functioning legal and justice system after, primarily, the German model, but also after the French and other European legal systems. As a result of the so-called democratization of the Japanese economy carried out by occupying allied forces, a third significant legal transfer occurs following the Second World War, one which is tightly oriented upon US law. Alongside constitutional law, economic law is found at the center of this transfer. The newly absorbed institutions are superimposed on those previously adopted from Europe.  

 

All of the transplanted western legal institutes operate within a social context shaped by a different cultural tradition. As an element of its expansive and developed heritage, Japan boasts a long-standing and self-defined tradition for the regulation of social conflicts, one which is fully independent of the European influences of Roman law and one which continues, today, to be characterised by a cooperative approach to relationships and communitarian structures. It is from these varied developmental strands that Japanese law has synthesized into a unique legal system of its own that cannot be directly assigned to any of the traditional legal traditions and which, thus, holds great comparative law interest (Comparison of Law with Japan). This is all the more true since the decades-long successful Japanese economic and regulatory model finds itself at a paradigmatic watershed as it attempts to take into account the 21st century demands of a global economy reality. The experiences of Japan in this regard represent a valuable opportunity for learning for the German observer (Research Focus in Japanese Law).  

Research Focus in Japanese Law

Two themes of current interest are presently at the centre of research in regards to Japan. The first is the paradigmatic transformation of the Japanese regulatory and supervisory models adopted slightly less than a decade ago as a response to the challenges of globalisation. The second theme, loosely related in terms of subject matter, entails the changes experienced within Japanese corporate governance. Both themes constitute a feature of the modern legal and institutional comparison found within the “Triad” (USA – EU – Japan). Thus, they comprise an element of the discussion contemplating the shape and borders of a possible international system convergence.

Transformation of the Regulatory Model

As a result of having intentionally circumscribed access to legal processes, the Japanese legal reality has until now been characterized by an extremely low volume of cases adjudicated and a small legal profession untypical for a modern, industrialized nation. This aspect was matched by a particular – bureaucratically controlled – approach towards the regulation and monitoring of economic activity. However, the prolonged structurally-based economic crisis of the 1990’s made it clear that this long-successful model for economic regulation had reached its limits. Namely, the pronounced bureaucratic paternalism which had long dominated inside of 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 wide and fascinating array of de-regulatory reforms as well as some “re-regulatory” reforms were instituted across nearly all legal fields. The stated goal was and is to create a transparent regime of market-oriented regulations which affords market forces priority over bureaucratic control and which can competently exist amid competing international regulatory schemes.
 
The heart of the reform is a fundamental system transformation which replaces a consensus oriented, secretive, discretionary and bureaucratically vested model of economic guidance with a rule-based, regulatory model which provides market participants with clear rules of conduct whose observance is monitored and whose violation is sanctioned in retrospect. This signifies a paradigmatic shift from ex ante monitoring where market entry is dependent on governmental approval to ex post supervision where market behaviour is reviewed by the courts. Though the reform process may not yet even have reached its conclusion, those reforms already implemented have essentially turned the former regulatory structure onto 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 administration process with a corresponding legal character, i.e. more transparency and less discretion. The change makes an expeditious reconfiguration of the judiciary indispensable since court-based, ex post supervision places a premium on efficient judicial institutions. In the Japanese context this means above all a drastic increase in the number of attorneys and judges. Accordingly, Japan has recently enacted a fundamental reform in respect of legal education with the goal of significantly raising the number of qualified and practice-minded jurists.

Alterations in Corporate Governance

As a result of the opening of Japanese markets compelled by globalisation and the decrease in the exchange rate compelled by the recession, large amounts of foreign equity capital has been flowing into Japan since the end of the 1990’s. Until the middle of the 90’s, the fraction of non-Japanese stock holders in market-listed Japanese firms was regularly under 5% and as such considerably less than the average within OECD nations. In the course of only a handful of years this figure has risen to the above-average level of 25%. Parallel to this development, the number of typical cross-over shares has significantly receded in both Germany (“Deutschland AG”) as well as in Japan (“Japan Inc.”).  Correspondingly diminished is the number of so-called “stable stockholders” who protect the management of listed companies from unapproved takeovers. Since 2003 Japan has in fact experienced its first (earnest) hostile takeovers; the so far underdeveloped market for management control has begun to take shape. Within corporate financing the emphasis has shifted from indirect financing by (main) banks to directly raising funds via the capital markets. As in Germany, all of these developments have resulted in a significant impact upon corporate governance and the corporate model of firm management and supervision traditionally practiced in Japan.
 
The practice of advisory boards and other committees being occupied exclusively by firm insiders as opposed to independent supervisory participants is one that is beginning to relax. The traditional conceptualization of a firm was oriented around the firm itself and the interests of those there employed – in short, the stakeholder value model. However, advancing the value of the stock, what was decades-long a non-priority for Japanese managers, has more recently ascended to the number one corporate aim. This has resulted in a conscious focus on the interests of the stock owners; hence, shareholder value is presently preached in Japan rather than stakeholder value.
 
Beginning in 2001, the Japanese legislature has in the course of several incremental measures comprehensively reformed company law, making it far less regulated and far more flexible. As such, overcoming the economic crisis should prove an easier task and the competitive capabilities of domestic companies should improve. In respect of organisational structure and corporate governance, a wealth of configurations now stand at the ready for incorporated businesses, i.e. the stock corporation, representing the dominant legal entity in Japan. The limited liability company, viewed as a business form unsuitable for the future, was abolished in 2005 though widely used before. For the corresponding German reform discussions, these developments are of great interest. In light of the first hostile takeover attempts and the growing fear of foreign firms, principles developed by courts in the U.S. state of Delaware were embodied in a ministerial guideline and thus quasi-adopted as a legal transplant in 2005. Since that time defensive measures in the form of the so-called poison pill have been deemed permissible in Japan. Several hundred listed firms have already installed this particular defensive measure.…