An analysis of Japan's financial system that is likely still valid

Michael J. Oakes, in a Reason piece titled More Bang For the Yen? from 1998 describes how fiscal policies relating to savings and investment affect individual financial decisions in Japan:

"Japanese haven't accumulated large savings merely because of cultural preferences. The tax system encourages savings and discourages participation by individuals in stock and bond markets. (Dividends are double-taxed, while interest income is taxed at a flat 20 percent.) Tax treatment for corporate ownership of stock encourages stock holding. Companies can use unrealized gains or losses to their advantage on balance sheets, while capital gains on sale of stock are taxed at an effective corporate income tax rate of almost 50 percent.

The tax structure, however, remains untouched by reform. So do accounting practices designed primarily for Ministry of Finance controls and not for public disclosure. In fact, most firms don't even regularly issue detailed reports to the public. The MOF gets the details and releases its own reports weeks later. Firms issue summarized versions to shareholders and prospective investors...

But these are small matters compared to the impact on the financial industry of [yen]230 trillion ($1.8 trillion) held in postal savings accounts run by the government and untouched by any deregulation. One-third of Japan's total savings is thus under government control. These funds, together with an additional [yen]100 trillion ($800 billion) from postal insurance contracts, are managed by the Ministry of Finance. Special tax treatment--it's the government post office, so there are no taxes paid on those revenues--give postal savings accounts higher interest rates and a clear advantage compared to banks.

Then there is the finance ministry itself. MOF officials establish financial policy, license financial institutions, and supervise their performance. Until recently, the ministry ran the Bank of Japan too (and many believe it still will, though more indirectly, under a revised law). As the financial reporting practices illustrate, institutional management systems are designed with MOF control in mind. Revealing serious problems with banks, brokerages, or insurance firms is, in practice, the same as revealing bad news about the MOF itself. No wonder that, as the end of the decade approaches, there is still little accounting of the bad loans stemming from the crash of the bubble economy in 1991."

This is a much more logical explanation of Japanese saving behavior than frequently referenced "cultural" differences.