New curriculum manual to state claim over Takeshima islets

The education ministry will include Japan's sovereignty claim over the disputed Takeshima islets in its manual for revised school curriculum guidelines, a plan that drew immediate protests from South Korea.

The manual, used as a guide for teachers in preparing classes and for publishers in putting together textbooks, will state that Takeshima "is an integral part of our territory," sources said.

Although it has no legal binding power, the inclusion of the clause in the manual will likely encourage more publishers to refer to Takeshima in textbooks when the revisions take full effect in spring 2012, sources said.

The manual will be compiled around July.

Takeshima, known as Tokto in South Korea, is currently occupied by South Korean security personnel.

The ministry's plan prompted an immediate reaction from Seoul.

South Korean President Lee Myung Bak told the Ministry of Foreign Affairs and Trade to "respond strictly" once the government gets confirmation of the plan, officials said.

The president's instructions were conveyed by Yu Myung Hwan, the minister of foreign affairs and trade, to Toshinori Shigeie, Japan's ambassador to South Korea, on Monday.

"If the reported plan is true, it is an attempt to undermine our sovereignty over Tokto, which is an integral part of our territory," Yu was quoted as saying. "Japan must immediately revise the plan."

Shigeie, who was summoned to the ministry for the meeting with Yu, said the plan is a policy for the future and has not yet been decided. He also said he will inform the Japanese government about South Korea's position, as expressed by Yu.

Calls to include Japan's sovereignty claim over Takeshima in the new curriculum guidelines had risen from some members of the ruling Liberal Democratic Party. The education ministry received similar views when it sought public opinion on its proposed guidelines.

However, Tokyo and Seoul resumed "shuttle diplomacy" with the Japan-South Korea summit last month, putting on hold inclusion of Japan's claim over the islets.

Currently, all junior high school civics and geography textbooks mention Tokyo's claim over the Northern Territories, which were seized by the former Soviet Union. The Diet is currently working on amending the Financial Instruments and Exchange Law, which would radically ease regulations concerning the banking business and expand the scope of services that banks are allowed to provide. The government apparently believes that such deregulation will help shore up Japanese banks, which have fallen far behind their U.S. and European rivals in international competitiveness.

The primary aim of the bill is to sharply lower regulatory walls that have separated the banking and securities businesses throughout the postwar period.

As it stands, the law prohibits banks and their brokerage subsidiaries from sharing directors or exchanging customer information. This rule is designed to prevent various unethical business practices. The system, for instance, keeps banks from putting pressure on its corporate borrowers to buy financial products from their securities affiliates. It also keeps brokerages from exerting pressure on their corporate clients to issue new bonds to raise money so as to pay back their debts to the parent banks.

In the United States and Europe, however, it is now common for banks and their securities affiliates to work hand in hand in fully integrated or closely coordinated operations. The government is apparently trying to level the playing field for Japanese banks by diluting the separation of banking and securities dealings. In exchange for deregulation of the banking industry, the bill requires banks to develop and make public their own systems to prevent unfair business practices involving their securities operations. And banks would have to keep improving these systems by having their effectiveness checked constantly by the authorities and independent experts.

The second aim of the bill is to permit banks to diversify their businesses. The present law imposes a 5-percent limit on a bank's stake in a company and a 15-percent ceiling on a banking group's overall shareholding in a firm. These limits on shareholdings make it difficult for banks to expand into investment banking services such as advising on mergers and acquisitions. This restriction would be eased, but only for specified purposes like supporting the revival of a company that would be beneficial for the local economy.

The proposed revision would make it easier for Japanese banks to deal with Islamic finance, which prohibits charging interest. Banks would be able to buy facilities and lend them out for fees. The regulatory reform would also pave the way for bank involvement in trading in permits to emit greenhouse gases.

Japan's financial crisis a decade ago triggered a massive consolidation of the industry. Despite the radical change in the nation's banking landscape, the principal revenue source for Japanese banks is still retail banking--the mundane business of taking deposits and making loans.

Investment banking and other lucrative securities-related services remain noncore businesses for Japanese banks. Their business portfolios must be changed radically if they are to become more competitive in the global market. Japanese banks should take advantage of this banking deregulation to change fundamentally their corporate cultures that have been nurtured in the business environment defined by a tight web of regulations. They need to enhance their international competitiveness so that they can again make a meaningful contribution to Japan's economic growth and the financial health of Japanese people.

At the same time, the subprime credit crisis has prompted serious soul-searching within the world financial community. Some experts are wondering if the financial system has become more vulnerable due to the liberalization of financial industries that has been promoted in other industrialized nations and the sophisticated financial technologies that have been developed in recent years.

Japan's banks cannot hope to win respect in the global market simply by following the trail blazed long ago by their Western rivals. The challenge for them is how to build new business models and strategies that reflect lessons from the recent financial turbulence but still put them one step ahead of leading global players. The regulatory change will sorely test the capability of Japanese banks.

--The Asahi Shimbun, May 19(IHT/Asahi: May 20,2008)