Hiroshi Oda - Japanese Law-Oxford University Press (2009)

JA PA N E SE L AW
Japanese Law
Third edition
H I ROSH I ODA
Sir Ernest Satow Professor of Japanese Law
University of London (University College)
Professor of College d’Europe (Brugge)
Attorney at Law
Member of the ICC Court of International Arbitration (Paris)
1
3
Great Clarendon Street, Oxford OX2 6DP
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Foreword
Almost a decade has passed since the publication of the second edition of this
book. After the ‘lost decade’ following the collapse of the ‘bubble economy’
in 1990, Japan has gone through a major reform—deregulation or ‘regulatory
reform’. Accordingly, major changes took place in almost every area of law. Just
to mention a few, there was a large-scale ‘Justice System Reform’ which encom-
passed various changes in the court system, the introduction of lay assessors in
the criminal procedure, a new law school system, etc. Company law, which was
embodied in the Commercial Code, was completely overhauled under a different
concept and became a separate law—the Company Law of 2005. Securities and
Exchange Law was replaced by the Financial Instruments and Exchange Law in
2006. Even the Civil Code, which had remained more or less unchanged (except
for family and succession) since the late nineteenth century, has gone through
significant changes. Certainly there are many positive results coming out of these
reforms, but also there have been some doubtful changes. The outcome of the
reforms of the past decade is yet to be assessed.
I have made efforts to cover most of these changes in this volume. In fact,
chapters on company law and securities law had to be completely rewritten and
the remaining chapters also had to be substantially revised.
Originally, it was not intended that a third edition of Japanese Law should be
published. Instead, the publication of Japanese Commercial Law was envisaged.
However, there was a strong demand for a comprehensive book on Japanese law,
so the format of the first two editions had to be followed and thus the present
volume covers all essential areas of Japanese law. Nevertheless, there is a shift
of emphasis in the third edition—the book focuses more on commercial and
business law. For example, the chapter on company law has almost doubled in
length.
The fact that the volume covers a wide range of subjects does not mean that it is
merely a summary or outline of the Japanese legal system. Ever since the first edi-
tion, I have always endeavoured to present the state of Japanese law in the way it
actually functions, by focusing on latest cases and discussions on current issues in
each area. Although Japanese law is based upon codified law, the role of case law
in Japan (and in the Civil law jurisdictions in general) is much larger than that
envisaged by people educated in the common law jurisdictions. My intention has
always been to ‘let the cases speak for themselves’.
I would like to thank all my friends and colleagues in academia and practice,
past and present, in the UK, Europe, and Japan, for their warm understand-
ing and support for my research activities. I am indebted to the former Head
of Department of the Faculty of Laws of University College London, Professor
xii Foreword
Jeffrey Jowell QC, and the current Head of Department, Dame Professor Hazel
Genn, for their support of the Japanese Law Chair and their understanding. I
am grateful to Professor Klaus Hopt, Professor Jürgen Basedow, and Dr Harald
Baum of the Max-Planck Institute for Foreign and International Private Law for
allowing me to spend several months every year doing research in the Institute.
My special thanks goes to people at Herbert Smith where I work as a consult-
ant, namely Mr David Gold, the senior partner, and Mr Richard Fleck CBE, the
Global Practice Partner, for giving me an opportunity to gain some insight into
the practice while writing this book. I am also grateful to Mr Kenji Kawamura,
visiting fellow at the Faculty of Laws of University College London, for com-
menting on my chapters on company law and securities law. I would also like
to thank the present and current editors of the Oxford University Press, namely
Bethan Cousins, and Chris Champion, for their patience and support.
Last, but not least, as ever, I am grateful to my wife Midori for her unfailing
support in researching and writing this book in London, Tokyo, and Hamburg.
This book is dedicated to Professor Ichiro Kato, who passed away in November
2008 at the age of 86. Professor Kato, who was formerly the President of the
University of Tokyo and Dean of the Law Faculty, was not my mentor in a strict
sense (he specialized in tort law), but was a great supporter of the Japanese Law
Chair at University College London. He was the managing partner of the Kato,
Nishida and Hasegawa Law Office, where I had the privilege of working, before
moving to the Nagashima, Ohno and Tsunematsu Law Office. He is remem-
bered by us not only for his sharp mind and enormous academic achievements,
but also for his warm and caring character.
Hiroshi Oda
London
March 2009
Abbreviations
ADR alternative dispute resolution
BIS Bank of International Settlement
CIETAC China International Economic and Trade Arbitration Commission
FIB Financial instruments business
FIEL Financial Instruments and Exchange Law
FSMA Financial Services and Markets Act 2000 (UK)
FTC Fair Trade Commission
HHI Herfindale Hirschman Index
IMF International Monetary Fund
IPO initial public offering
JASDAQ Japan Association of Securites Dealers Automated Quotation
JCAA Japan Commercial Arbitration Association
LLC limited liability companies (US type)
LLP limited liability partnerships
LPS lender processing services
METI Ministry of Trade, Economy, and Industry
MSCB moving strike convertible bonds
MTF multiple trading facilities
NASDAQ National Association of Securities Dealers Automated Quotations
NBS Nippon Broadcasting System Inc.
OECD Organisation for Economic Cooperation and Development
PCT Patent Co-operation Treaty
PTS private trading system
R&I Rating and Investment Information
ROE return on equity
SCAP Supreme Commander of the Allied Powers
SEC Securities and Exchange Commission (US)
SEL Securities and Exchange Law (replaced by FIEL)
SII Talks Structural Impediments Initiatives Talks
TDNET Timely Disclosure Network
TOB takeover bids
TOMAC Tokyo Maritime Arbitration Commission
TOPIX Tokyo Stock Price Index
TRIPs Trade Related Aspects of Intellectual Property Rights, Agreement on
TSE Tokyo Stock Exchange
UNCITRAL United Nations Commission on Trade Law
WTO World Trade Organization
Table of Cases
S U PR E M E C OU RT
Judgment of the Supreme Court, 12 March 1948 (Keishū 2-3-191) . . . . . . . . . . . . . . . . . . . . . 106
Judgment of the Supreme Court, 20 September 1948 (Keishū 23-12-1625) . . . . . . . . . . . . . . . . 90
Judgment of the Supreme Court, 6 February 1951 (Minshū 5-3-36) . . . . . . . . . . . . . . . . . . . . 154
Judgment of the Supreme Court, 8 October 1952 (Minshū 6-9-783) . . . . . . . . . . . . . . . . . . . . . 55
Judgment of the Supreme Court, 13 March 1953 (Keishū 11-3-997;
Lady Chatterley’s Lover case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Judgment of the Supreme Court, 18 December 1953 (Minshū 7-12-1446) . . . . . . . . . . . . . . . . 142
Judgment of the Supreme Court, 26 November 1954 (Minshū 8-11-2087) . . . . . . . . . . . . . . . 130
Judgment of the Supreme Court, 26 March 1955 (Minshū 11-3-543). . . . . . . . . . . . . . . . . . . . 196
Judgment of the Supreme Court, 7 October 1955 (Minshū 9-11-1616) . . . . . . . . . . . . . . . . . . . 128
Judgment of the Supreme Court, 22 November 1955 (Minshū 9-12-1739;
Dai-Nippon Bōseki case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
Judgment of the Supreme Court, 4 July 1956 (Minshū 10-7-785) . . . . . . . . . . . . . . . . . . . . . . . 141
Judgment of the Supreme Court, 31 January 1957 (Minshū 11-1-170) . . . . . . . . . . . . . . . . . . . 189
Judgment of the Supreme Court, 7 February 1957 (Minshū 11-2-227) . . . . . . . . . . . . . . . . . . . 132
Judgment of the Supreme Court, 16 July 1957 (Minshū 11-7-1254) . . . . . . . . . . . . . . . . . . . . . 194
Judgment of the Supreme Court, 1 May 1958 (Keishū 12-7-1272) . . . . . . . . . . . . . . . . . . . . . . . 39
Judgment of the Supreme Court, 28 May 1958 (Keishū 12-8-1694;
Uhoro Coal Mine case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403, 433
Judgment of the Supreme Court, 15 October 1958 (Keishū 12-14-3305) . . . . . . . . . . . . . . . . . . 50
Judgment of the Supreme Court, 17 September 1959 (Minshū 13-11-1412) . . . . . . . . . . . . . . . 137
Judgment of the Supreme Court, 26 November 1959 (Minshū 13-12-1573) . . . . . . . . . . . . . . . . 52
Judgment of the Supreme Court, 12 December 1959 (Keishū 13-13-3225; Sunagawa case) . . . . 33
Judgment of the Supreme Court, 18 March 1960 (Minshū 14-4-483) . . . . . . . . . . . . . . . . . . . 128
Judgment of the Supreme Court, 21 April 1960 (Minshū 14-6-930) . . . . . . . . . . . . . . . . . . . . 137
Judgment of the Supreme Court, 20 July 1960 (Keishū 14-9-1243; Tokyo
Metropolitan Public Security Regulation case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91, 94
Judgment of the Supreme Court, 21 October 1960 (Minshū 14-12-2661) . . . . . . . . . . . . . . . . 134
Judgment of the Supreme Court, 16 February 1961 (Minshū 15-2-244) . . . . . . . . . . . . . . . . . . 183
Judgment of the Supreme Court, 26 May 1961 (Minshū 5-5-1440) . . . . . . . . . . . . . . . . . . . . . 120
Judgment of the Supreme Court, 15 December 1961 (Minshū 15-11-2852) . . . . . . . . . . . . . . . 160
Judgment of the Supreme Court, 2 May 1962 (Keishū 16-5-4959) . . . . . . . . . . . . . . . . . . . . . . 107
Judgment of the Supreme Court, 18 May 1962 (Minshū 16-5-1108;
Ōhira Silk Reeling case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Judgment of the Supreme Court, 28 November 1962 (Keishū 16-11-1593) . . . . . . . . . . . . . 34, 105
Judgment of the Supreme Court, 18 January 1963 (Minshū 17-1-25) . . . . . . . . . . . . . . . . . . . . 128
Judgment of the Supreme Court, 24 June 1964 (Minshū 18-5-854) . . . . . . . . . . . . . . . . . .190, 192
Judgment of the Supreme Court, 28 July 1964 (Minshū 18-6-1220 . . . . . . . . . . . . . . . . . . . . . 120
Judgment of the Supreme Court, 9 March 1965 (Minshū 19-2-233) . . . . . . . . . . . . . . . . . . . . . 119
Judgment of the Supreme Court, 30 June 1965 (Minshū 19-4-1143) . . . . . . . . . . . . . . . . . . . . 147
xvi Table of Cases
Judgment of the Supreme Court, 10 September 1965 (Minshū 19-6-1512) . . . . . . . . . . . . . . . . 131
Judgment of the Supreme Court, 3 December 1965 (Minshū 19-9-2090). . . . . . . . . . . . . . . . . 139
Judgment of the Supreme Court, 4 October 1966 (Minshū 20-8-1565) . . . . . . . . . . . . . . . . . . 149
Judgment of the Supreme Court, 26 October 1966 (Keishū 20-8-901;
Zentei-Chūyū case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45, 92, 109, 385
Judgment of the Supreme Court, 24 May 1967 (Minshū 21-5-1043; Asahi case) . . . . . . . . . . . . 90
Judgment of the Supreme Court, 1 November 1967 (Minshū 21-9-2249). . . . . . . . . . . . . . .43, 191
Judgment of the Supreme Court, 2 November 1967 (Minshū 21-9-2278). . . . . . . . . . . . . . . . . 194
Judgment of the Supreme Court, 2 August 1968 (Minshū 22-8-1571) . . . . . . . . . . . . . . . . . . . 168
Judgment of the Supreme Court, 27 August 1968 (Minshū 22-8-1404) . . . . . . . . . . . . . . . . . . 190
Judgment of the Supreme Court, 24 September 1968 (Hanji 539-40) . . . . . . . . . . . . . . . . . . . 182
Judgment of the Supreme Court, 13 November 1968 (Minshū 22-12-2526) . . . . . . . . . . . . . . . . 8
Judgment of the Supreme Court, 25 December 1968 (Minshū 22-13-3459;
Shūhoku Bus case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388
Judgment of the Supreme Court, 16 January 1969 (Minshū 23-1-18) . . . . . . . . . . . . . . . . . . . . 168
Judgment of the Supreme Court, 2 April 1969 (Keishū 23-5-685;
Zenshihō Sendai case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402
Judgment of the Supreme Court, 25 June 1969 (Keishū 23-7-975;
Evening Wakayama Jiji case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Judgment of the Supreme Court, 15 October, 1969 (Keishū 23-10-1239;
Prosperity of Vice case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Decision of the Supreme Court, 26 November 1969 (Keishū 24-6-280;
Hakata Station case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Judgment of the Supreme Court, 24 December 1969 (Keishū 23-12-1625;
Kyoto Zengakuren case). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Judgment of the Supreme Court, 11 June 1970 (Minshū 24-6-516) . . . . . . . . . . . . . . . . . . . . . 420
Judgment of the Supreme Court, 24 June 1970 (Minshū 24-6-587) . . . . . . . . . . . . . . . . . . . . . 149
Judgment of the Supreme Court, 24 June 1970 (Minshū 24-6-625; Yawata Steel case) . . . . . . . 125
Judgment of the Supreme Court, 16 July 1970 (Minshū 24-7-909) . . . . . . . . . . . . . . . . . . . . . . 163
Judgment of the Supreme Court, 28 July 1970 (Minshū 24-7-1220;
Yokohama Rubber case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
Judgment of the Supreme Court, 22 September 1970 (Minshū 24-10-1424) . . . . . . . . . . . . . . 130
Judgment of the Supreme Court, 13 October 1970 (Hanji 614-46) . . . . . . . . . . . . . . . . . . . . . 146
Judgment of the Supreme Court, 20 January 1971 (Minshū 25-1-1) . . . . . . . . . . . . . . . . . . . . . . 40
Judgment of the Supreme Court, 18 March 1971 (Minshū 25-2-183) . . . . . . . . . . . . . . . . . . . . 247
Judgment of the Supreme Court, 23 April 1971 (Minshū 25-3-351) . . . . . . . . . . . . . . . . . . . . . 195
Judgment of the Supreme Court, 3 June 1971 (Minshū 25-4-455) . . . . . . . . . . . . . . . . . . . . . . 134
Judgment of the Supreme Court, 27 June 1972 (Minshū 26-5-1067) . . . . . . . . . . . . . . . . . . . . 121
Judgment of the Supreme Court, 22 November 1972 (Keishū 26-9-544;
Kawasaki Minshō case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Judgment of the Supreme Court, 4 April 1973 (Keishū 27-3-265; Patricide case) . . . . . . . . . 33, 99
Kokurō Kurume Station case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
Table of Cases xvii
Zen-nōrin keishokuhō case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45, 385
Judgment of the Supreme Court, 7 June 1973 (Minshū 27-6-681) . . . . . . . . . . . . . . . . . . . . . . 142
Judgment of the Supreme Court, 9 October 1973 (Minshū 27-9-1129) . . . . . . . . . . . . . . . . . . 125
Judgment of the Supreme Court, 26 October 1973 (Minshū 27-9-1240) . . . . . . . . . . . . . . . . . 119
Mitsubishi Plastics case). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101, 389
Judgment of the Supreme Court, 15 March 1974 (Minshū 28-2-265) . . . . . . . . . . . . . . . . . . . . 393
Judgment of the Supreme Court, 10 July 1974 (Minshū 28-5-872). . . . . . . . . . . . . . . . . . . . . . 190
Judgment of the Supreme Court, 26 September 1974 (Keishū 28-6-329) . . . . . . . . . . . . . . 34, 101
Judgment of the Supreme Court, 6 November 1974 (Keishū 28-9-393; Sarufutsu case) . . . . 40, 92
Judgment of the Supreme Court, 25 April 1975 (Minshū 29-4-456; Nihon Shokuen Seizō
case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395
Judgment of the Supreme Court, 25 April 1975 (Minshū 29-4-481;
Marushima Suimon case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403
Judgment of the Supreme Court, 30 April 1975 (Minshū 29-4-572) . . . . . . . . . . . . . . . . . 33, 108
Judgment of the Supreme Court, 10 September 1975 (Keishū 25-8-489;
Tokushima Security Regulation case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26, 51, 93
Judgment of the Supreme Court, 24 October 1975 (Minshū 29-9-1417) . . . . . . . . . . . . . .187, 422
Judgment of the Supreme Court, 26 January 1976 (Shōmu-geppō 22-2-578) . . . . . . . . . . . . . . . 42
Judgment of the Supreme Court, 14 April 1976 (Minshū 30-3-223) . . . . . . . . . . . . . . . . . . 33, 102
Judgment of the Supreme Court, 30 April 1976 (Keishū 30-3-452) . . . . . . . . . . . . . . . . . . . . . 431
Judgment of the Supreme Court, 25 May 1976 (Minshū 30-4-554) . . . . . . . . . . . . . . . . . . . . . 120
Judgment of the Supreme Court, 30 September 1976 (Minshū 30-8-816) . . . . . . . . . . . . .183, 184
Judgment of the Supreme Court, 31 January 1977 (Saikōsai-saibanshū 120-23;
Kōchi Broadcasting Co. case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395
Judgment of the Supreme Court, 20 June 1977 (Minshū 31-4-449;
Gifu Credit Bank case). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128, 351
Judgment of the Supreme Court, 13 July 1977 (Minshū 31-4-533; Tsu Jichinsai case) . . . . . . . 104
Decision of the Supreme Court, 9 August 1977 (Keishū 31-5-821; Sayama case) . . . . . . . . . . . 438
Meguro Telegram and Telephone Office case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
Decision of the Supreme Court, 31 May 1978 (Keishū 32-3-457; Divulgence
of Ministry of Foreign Affairs Secret case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Judgment of the Supreme Court, 4 October 1978 (Minshū 32-7-1223; McLean case) . . . . 88, 445
Judgment of the Supreme Court, 20 August 1979 (Minshū 24-9-1268) . . . . . . . . . . . . . . . . . . 195
Judgment of the Supreme Court, 13 November 1979 (Hanji 952-49) . . . . . . . . . . . . . . . . . . . 184
Judgment of the Supreme Court, 16 June 1980 (Hanji 978-112) . . . . . . . . . . . . . . . . . . . . . . . 247
Judgment of the Supreme Court, 16 July 1980 (Minshū 39-5-989). . . . . . . . . . . . . . . . . . . . . . . 48
Judgment of the Supreme Court, 28 November 1980 (Keishū 34-6-433;
Yojō-han Fusumano Shitabari case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Judgment of the Supreme Court, 24 March 1981 (Minshū 35-2-300;
Nissan Motors case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101, 389
xviii Table of Cases
Judgment of the Supreme Court, 16 April 1981 (Keishū 35-3-84; Monthly Pen case) . . . . . . . . . 98
Judgment of the Supreme Court, 8 September 1981 (Hanji 1019-73) . . . . . . . . . . . . . . . . . . . . 160
Judgment of the Supreme Court, 16 October 1981 (Minshū 35-7-1224;
Malaysian Airlines case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459
Judgment of the Supreme Court, 8 April 1982 (Minshū 26-4-594) . . . . . . . . . . . . . . . . . . . . . . 96
Judgment of the Supreme Court, 8 March 1983 (Keishū 37-2-15). . . . . . . . . . . . . . . . . . . . . . . . 96
Judgment of the Supreme Court, 27 April 1983 (Minshū 37-3-345) . . . . . . . . . . . . . . . . . . . . . . 35
Judgment of the Supreme Court, 16 September 1983 (Rōhan 415-16;
Daihatsu-Kōgyō case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392
Judgment of the Supreme Court, 1 November 1983 (Hanji 1100-151; Meiji Dairly case) . . . . . 392
Judgment of the Supreme Court, 7 November 1983 (Minshū 37-9-1243). . . . . . . . . . . . . . . . . 102
Judgment of the Supreme Court, 26 January 1984 (Minshū 38-2-53; Daitō Suigai case) . . . . . 196
Judgment of the Supreme Court, 24 February 1984 (Keishū 38-4-1287;
Oil (Price) Cartel case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344
Judgment of the Supreme Court, 22 April 1984 (Minshū 41-3-408; Forestry Law case) . . . . . . 108
Judgment of the Supreme Court, 18 September 1984 (Hanji No. 1137) . . . . . . . . . . . . . . . . . . 154
Judgment of the Supreme Court, 12 December 1984 (Minshū 38-12-1308). . . . . . . . . . . . . . . . 97
Judgment of the Supreme Court, 17 July 1985 (Minshū 39-5-1100) . . . . . . . . . . . . . . . . . . .35, 103
Judgment of the Supreme Court, 23 October 1985 (Keishū 39-6-413) . . . . . . . . . . . . . . . . . . . . 50
Judgment of the Supreme Court, 11 June 1986 (Minshū 40-4-872;
Hoppō Journal case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89, 91, 97, 414
Judgment of the Supreme Court, 14 July 1986 (Rōhan 477-6; Tōa Paint case) . . . . . . . . . . . . . 397
Judgment of the Supreme Court, 23 October 1986 (Rōhan 484-7;
Osaka Prefectural Committee for Education case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397
Judgment of the Supreme Court, 22 April 1987 (Minshū 41-3-408) . . . . . . . . . . . . . . . . . . . . . 33
Judgment of the Supreme Court, 2 July 1987 (Minshū vol. 41, No. 5) . . . . . . . . . . . . . . . . . . . 362
Judgment of the Supreme Court, 22 September 1987 (Keishū 41-6-255;
Daitō Tessen case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436
Judgment of the Supreme Court, 2 March 1989 (Hanji 1363–68; Shiomi case) . . . . . . . . . .89, 110
Tsuruoka Paraffin Oil case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362, 422
Judgment of the Supreme Court, 10 May 1991 (Minshū 45-5-919; Asai case). . . . . . . . . . . . . . 438
Judgment of the Supreme Court, 1 July 1992 (Minshū 46-5-437; Narita Shinpō case) . . . . . . . 106
Judgment of the Supreme Court, 15 December 1992, (Minshū 46-9-2829) . . . . . . . . . . . . . . . 108
Judgment of the Supreme Court, 16 February 1993 (Minshū 47-3-1687;
Minomo Chūkokuhi case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Decision of the Supreme Court, 20 July 1994 (Hanji 1507-51; Kyōdō-Shiryō case) . . . . . . . . . 316
Judgment of the Supreme Court, 22 February 1995 (Keishū 49-2-1;
Rockheed Marubeni Route case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431
Decision of the Supreme Court, 17 July 1995 (Minshū 49-7-1789) . . . . . . . . . . . . . . . . . . . . . . 101
Judgment of the Supreme Court, 5 December 1995 (Hanji 1563-81) . . . . . . . . . . . . . . . . . . . . 101
Judgment of the Supreme Court, 15 December 1995 (Keishū 49-10-842) . . . . . . . . . . . . . .89, 110
Judgment of the Supreme Court, 2 April 1997 (Minshū 51-4-1637;
Ehime Tamagushi-ryō case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Judgment of the Supreme Court, 1 July 1997 (NBL No. 621; BBS case) . . . . . . . . . . . . . . . . . 353
Table of Cases xix
Judgment of the Supreme Court, 16 February 1999 ( Jurist, 1999. vol. 1154) . . . . . . . . . . . . . . 320
Judgment of the Supreme Court, 10 June 1999 (Keishū 53-5-415) . . . . . . . . . . . . . . . . . . . . . . 320
Judgment of the Supreme Court, 13 February 2002 (Minshū 56-2-331) . . . . . . . . . . . . . . . . . 318
Judgment of the Supreme Court, 12 September 2003 (Minshū 57-8-973) . . . . . . . . . . . . . . . . . 89
Judgment of the Supreme Court, 13 January 2005 (Minshū 60-1-1). . . . . . . . . . . . . . . . . . . . . . 43
Judgment of the Supreme Court, 14 July 2005 (Minshū 59-6-1323) . . . . . . . . . . . . . . . . . . . . 313
Judgment of the Supreme Court, 23 February 2006 (Minshū vol. 60, No. 2) . . . . . . . . . . . . . . 134
Judgment of the Supreme Court, 12 June 2006 (Hanji No. 1941) . . . . . . . . . . . . . . . . . . . . . . 154
Judgment of the Supreme Court, 21 July 2006 (Minshū 60-6-2542) . . . . . . . . . . . . . . . . . . . . 461
Decision of the Supreme Court, 3 October 2006 (Minshū vol. 60, No. 8) . . . . . . . . . . . . . . . . . 98
Judgment of the Supreme Court, 2 February 2007 (Minshū vol. 61, No. 1) . . . . . . . . . . . . . . . 128
Judgment of the Supreme Court, 6 February 2007 (Minshū 61-1-122) . . . . . . . . . . . . . . . . . . . 120
Judgment of the Supreme Court, 27 February 2007 (Hanji No. 1964) . . . . . . . . . . . . . . . . . . 154
Decision of the Supreme Court, 7 August 2007 (Minshū 61-5-2215) . . . . . . . . . . . . . . . . . . . . 267
Judgment of the Supreme Court, 18 September 2007 (Minshū 61-6-601;
Hiroshima Bōsō-zoku Jōrei case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Judgment of the Supreme Court, 4 June 2008 (Hanta 1267-92) . . . . . . . . . . . . . . . . . . . . . . . . . 34
S U PR E M E T R I BU N A L
PR EWA R PR E DE C E S S OR TO T H E S U PR E M E C OU RT 
Judgment of the Supreme Tribunal, 21 May 1903 (Keiroku 9-14-874) . . . . . . . . . . . . . . . . . . . 431
Judgment of the Supreme Tribunal, 5 February 1906 (Minroku 12-136) . . . . . . . . . . . . . . . . . 145
Judgment of the Supreme Tribunal, 15 December 1908 (Minroku 14-1276) . . . . . . . . . . . . . . 168
Judgment of the Supreme Tribunal, 6 July 1910 (Minroku 16-537) . . . . . . . . . . . . . . . . . . . . . 144
Judgment of the Supreme Tribunal, 19 December 1912 (Minroku 18-1087) . . . . . . . . . . . . . . 141
Judgment of the Supreme Tribunal, 4 July 1914 (Keiroku 20-1360;
Tochūken Kumoemon case). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Judgment of the Supreme Tribunal, 22 December 1916 (Minroku 22-2474;
Osaka Alkali case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Judgment of the Supreme Tribunal, 30 April 1917 (Minroku 23-715). . . . . . . . . . . . . . . . . . . . 184
Judgment of the Supreme Tribunal, 22 November 1922 (Minroku 27-1978) . . . . . . . . . . . . . . 138
Judgment of the Supreme Tribunal, 28 November 1925 (Minshū 4-670;
Daigaku-yu case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Judgment of the Supreme Tribunal, 22 May 1926 (Minshū 5-386; Fukimaru case) . . . . . 142, 190
Judgment of the Supreme Tribunal, 13 October 1926 (Minshū 5-785) . . . . . . . . . . . . . . . . . . . 194
Judgment of the Supreme Tribunal, 18 October 1926 (Hyōron 16). . . . . . . . . . . . . . . . . . . . . . . 52
Decision of the Supreme Tribunal, 28 December 1928 (Minshū 7-1128) . . . . . . . . . . . . . . . . . 461
Judgment of the Supreme Tribunal, 5 April 1929 (Minshū 8-373) . . . . . . . . . . . . . . . . . . . . . . 142
Judgment of the Supreme Tribunal, 16 December 1929 (Minshū 8-12-944) . . . . . . . . . . . . . . 145
Judgment of the Supreme Tribunal, 12 March 1935 (Minshū 14-482) . . . . . . . . . . . . . . . . . . . 144
Judgment of the Supreme Tribunal, 5 October 1935 (Minshū 14-1965;
Unazuki hotspring case). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
xx Table of Cases
Judgment of the Supreme Tribunal, 30 September 1942 (Minshū 21-911) . . . . . . . . . . . . . . . . 167
Judgment of the Supreme Tribunal, 6 December 1944 (Minshū 23-19-613) . . . . . . . . . . . . . . 153
J U D G M E N T S OF H IGH C OU RT S
Judgment of the Tokyo High Court, 19 September 1951 (Kōmin 4-14-497) . . . . . . . . . . . . . . 342
Decision of the Tokyo High Court, 18 March 1957 (Gyōshū 8-3-443;
Kitaguni News case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
Judgment of the Takamatsu High Court, 31 March 1963 (KōKeishū 19-2-136) . . . . . . . . . . . . 432
Judgment of the Tokyo High Court, 17 October 1967 (Gyōsai-Reishū 18-10-1307) . . . . . . . . . 366
Judgment of the Nagoya High Court, 29 March 1971 (Hanji No. 634) . . . . . . . . . . . . . . . . . . 156
Judgment of the Nagoya High Court, 10 April 1971 (Rōmin 22-2-453) . . . . . . . . . . . . . . . . . . 385
Decision of the Tokyo High Court, 30 April 1975 (KōMinshū 28-2-174) . . . . . . . . . . . . . . . . . 348
Decision of the Tokyo High Court, 19 March 1979 (KōMinshū 32-9/12-1391) . . . . . . . . . . . . 416
Judgment of Tokyo High Court, 29 October 1979 (Rōmin 30-5-1002;
Tōyō Sanso case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396
Judgment of the Tokyo High Court, 26 September 1980 (Hanji 983-22) . . . . . . . . . . . . . . . . 330
Judgment of the Tokyo High Court, 26 September 1980 (KōKeishū 33-5-359;
Oil (Production Adjustment) Cartel case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343, 344
Judgment of the Sendai High Court, Akita Division, 26 March 1985
(Hanji 1147-19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422
Judgment of the Tokyo High Court, 20 July 1988 (Hanji 1305-52) . . . . . . . . . . . . . . . . . . . . . 316
Judgment of the Tokyo High Court, 14 September 1994 (Hanji 1507-43; Shiseidō case) . . . . . 350
Judgment of the Tokyo High Court, 25 September 1995 (Hanta 906-136) . . . . . . . . . . . . . . . 341
Judgment of the Tokyo High Court, 26 September 1995 (Hanji 1549-11;
Nomura Securities case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
Judgment of the Sapporo High Court, 2 March 2006 (Hanji 1946-128) . . . . . . . . . . . . . . . . . 249
Judgment of the Fukuoka High Court, 19 June 2007 (Hanta No. 1265) . . . . . . . . . . . . . . . 8, 156
J U D G M E N T S OF DI S T R IC T C OU RT S
Judgment of the Kōbe District Court, 20 July 1956 (Rōmin 7-4-838; Bōki Seizō case). . . . . . . 389
Judgment of the Wakayama District Court, 14 March 1959 (Rōmin 10-2-127;
Wakayama Pile Orimino case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397
Judgment of the Tokyo District Court, 9 August 1959 (KaMinshū 11-8-1647) . . . . . . . . . . . . 461
Judgment of the Tokyo District Court, 28 September 1964 (KaMinshū 15-9-2317). . . . . . . . . . 87
Judgment of the Tokyo District Court, 26 April 1965 (Hanji 408-14) . . . . . . . . . . . . . . . . . . . 455
Judgment of the Kyoto District Court, 27 May 1965 (KaMinshū 16-5-923) . . . . . . . . . . .410, 456
Judgment of the Tokyo District Court, 20 December 1966 (Rōmin 17-6-1407;
Sumitomo Cement case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101, 389
Judgment of the Tokyo District Court, 7 June 1967 (KaMinshū 18-5/6-607) . . . . . . . . . . . . . 197
Judgment of the Tsu District Court, Yokkaichi Division, 24 July 1967
(Hanji 672-30; Yokkaiachi Pollution case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
Judgment of the Tokyo District Court, 9 August 1967 (RōMinshū 18-4-872) . . . . . . . . . . . . . 455
Judgment of the Tokyo District Court, 1 July 1969 (Rōmin 20-4-715;
Tōkyū Kikan Kōgyō case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390
Judgment of the Tokyo District Court, 19 July 1969 (Rōmin 20-4-813;
Katsuragawa Seishi Seisakusho case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401
Judgment of the Tokyo District Court, 17 July 1970 (Hanji 604-29) . . . . . . . . . . . . . . . . . . . . . 96
Table of Cases xxi
Judgment of the Nara District Court, 23 October 1970
(KaMinshū 21-9/10-1369) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379
Judgment of the Toyama District Court, 30 June 1971 (KaMinshū 22-5/6-1) . . . . . . . . . . . . . 187
Judgment of the Osaka District Court, 10 December 1971 (Rōmin 22-6-1163;
Mistui Shipbuilding case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
Decision of the Tokyo District Court, 23 July 1976 (Hanji No. 820; Nihon
Television Broadcasting Co. case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397
Judgment of the Osaka District Court, 22 December 1977 (Hanta 361-127). . . . . . . . . . . . . . 460
Judgment of the Okayama District Court, 31 July 1979 (Rōhan 326-44;
Sumitomo Heavy Industries case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395
Judgment of the Tokyo District Court, 27 February 1981 (Hanji 1010-85) . . . . . . . . . . . . . . . 458
Judgment of the Tokyo District Court, 30 March 1981 (Hanji 1363-68) . . . . . . . . . . . . . . . . . 443
Judgment of the Niigata District Court, 29 September 1971 (Hanji 642-96;
Niigata Minamata case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .183, 187
Judgment of the Fukuoka District Court, Kokura Division, 29 March 1982
(Hanji 1037-14; Kanemi Yushō case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Judgment of the Osaka Appellate Court, 19 April 1984 (KōKeishū 37-1-98;
Kōbe Matsuri case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
Decision of the Tokyo District Court, 28 September 1984 (Hanta 534-246;
Pacman case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Judgment of the Tokyo High Court, 24 December 1984 (Hanji No. 1144) . . . . . . . . . . . . . . . 156
Judgment of the Tokyo District Court, 20 June 1986 (Hanji 1196-87) . . . . . . . . . . . . . . . . . . 460
Judgment of the Tokyo High Court, 25 August 1986 (Hanji 1208-66) . . . . . . . . . . . . . . . . . . 109
Judgment of the Kanazawa District Court, 27 November 1987 (Hanji 1268-143;
Kitahama Doboku-Saiseki case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Judgment of the Osaka District Court, 30 November 1987 (Hanji 1269-147) . . . . . . . . . . . . . 397
Interim Judgment of the Tokyo District Court, 30 May 1989 (Hanji 1348-91) . . . . . . . . . . . . 460
Judgment of the Yokohama District Court, 31 October 1991 (Hanji 1418-113) . . . . . . . . . . . . 458
Judgment of the Tokyo District Court, 28 January 1992 (Hanji 1437-122) . . . . . . . . . . . . . . . 453
Judgment of the Tokyo District Court, 4 February 1994 (Hanta, 841-271) . . . . . . . . . . . . . . . 313
Judgment of the Tokyo District Court, 18 July 1994 (Hanji 1474-25;
Shiseidō case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350
Judgment of the Tokyo District Court, 3 October 1994 (Shiryō-ban Shōji-Hōmu
128-166; Japan Unysis case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
Judgment of the Matsue District Court, 8 November 1994 (Hanji 1549-109) . . . . . . . . . . . . . 455
Judgment of the Nagano District Court, Ueda Division, 15 March 1996
(Hanta 905-276; Marukō Alarm case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Judgment of the Fukuoka District Court, Kokura Division, 26 March 1996
(Rōhan 703-80; Nippon Steel Corporation case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398
Judgment of the Osaka District Court, 18 March 1998 (Hanji 1658-180) . . . . . . . . . . . . . . . . 245
Judgment of the Tokyo District Court, 5 February 1999 (Hanta No. 1073) . . . . . . . . . . . . . . . 157
Judgment of the Tokyo District Court, 28 August 2000 (Hanji, No. 1737) . . . . . . . . . . . . . . . . . 8
Decision of the Tokyo District Court, 28 June 2007 (Shōji Hōmu No. 1805) . . . . . . . . . . . . . . 267
Judgment of the Tokyo District Court, 20 September 2007 (Hanji 1985-140) . . . . . . . . . 278, 290
A DJ U DIC AT IONS OF O T H E R C OU RT S
Adjudication of Nagoya Family Court, 2 March 1974 (Kagetsu 26-8-94) . . . . . . . . . . . . . . . . 458
xxii Table of Cases
DE C I S IONS OF O T H E R C OU RT S
Decision of the Osaka High Court, 12 July 1973 (KaMinshū 24-5/8-455) . . . . . . . . . . . . . . . . 421
Decision of the Fukuoka Appellate Court, 13 July 1977 (KōMinshū 30-3-175;
Fukuoka Sumon case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415
Decision of the Sapporo High Court, 30 September 1987 (Hanji, No. 1258). . . . . . . . . . . . . . . . 8
F TC DE C I S IONS
Hearing Decision of the FTC, 30 August, 1949 (Shinketsushū 1-62;
Yuasa Woods case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
Hearing Decision of the FTC, 4 April 1952 (Shinketushū 4-1; Noda Soya Sauce case) . . . . . . . 343
Recommendation Decision of the FTC, 6 November 1953 (Shinketsushū 5-61;
Industrial Bank of Japan case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
Recommendation Decision of the FTC, 10 December 1955 (Shinketsushū 7-99;
Second Taishō Pharmaceutical case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
Hearing Decision of the FTC, 28 July 1956 (Shinketsushū 8-12;
Snow Brand Dairy case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333, 334
Recommendation Decision of the FTC, 30 January 1957 (Shinketsushū 8-51;
Nihon Musical Instrument Manufacturing case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336
Recommendation Decision of the FTC, 17 October 1957 (Shinketsushū 9-11) . . . . . . . . . . . . . 346
Hearing Decision of the FTC, 19 April 1967 (Shinketsushū 14-64;
Marugame Grocery case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
Recommendation Decision of the FTC, 7 November 1966 (Shinketsushū 12-146;
Nihon Suisan case). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Amano Pharmaceutical case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357
Recommendation Decision of the FTC, 18 September 1972 (Shinketsushū 19-87;
Tōyō Seikan case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Recommendation Decision of the FTC, 27 December 1972 (Shinketsushū 19-140) . . . . . . . . . 357
Recommendation Decision of the FTC, 27 December 1972 (Shinketsushu 19-124;
International Rayon Cartel case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
Recommendation Decision of the FTC, 20 February 1976 (Shinketsushū 22-127;
France Bed case). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Consent Decision of the FTC, 24 November 1977 (Shinketsushū 24-50) . . . . . . . . . . . . . . . . . 348
Recommendation Decision of the FTC, 2 February 1980 (Shinketsushū 26-85;
Tokyo Linoleum case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347
Decision of the FTC to terminate the proceedings, 26 October 1981
(Shinketsushū 28-79) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
Consent Decision of the FTC, 17 June 1982 (Shinketsushū 29-31;
Mitsukoshi Department Store case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351
Recommendation Decision of the FTC, 31 March 1983 (Shinketsushū 29-104;
Soda Ash Import Cartel case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
Strech Film cartel case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
Hearing Decision of the FTC, 28 July, 1994 (Shinketsushū 41-46; Mitsubishi
Building Technoservice case) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
Consent decision of the FTC, 30 November 1995 (Shinketsushū 42-97; Shiseidō case) . . . . . . 350
Recommendation Decision of the FTC, 22 March 1996 (Shinketsushū 42-195). . . . . . . . . . . . 352
Table of Legislation
J A PA N
Constitution
Constitution (1946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 16, 17, 21, 22, 26–32,
35, 36, 38–40, 41, 43, 49, 50, 52, 54, 55, 57, 59, 60, 67, 87– 92, 97– 99,
102, 103, 105, 109, 119, 141, 169, 197, 201, 202, 383– 385, 389, 399,
402, 430, 436, 437, 441–442, 444–445
Codes
Civil Code . . . . . . . . . . . . . . . . . 3, 6,8, 20, 27, 42, 43, 51, 101, 113–127, 131, 134–138, 140, 141,
144–150, 153, 155, 158, 162, 164–166, 169, 170–178, 180, 183–185, 188, 189,
191–193, 195, 196, 199, 201, 202, 205, 210, 211, 217, 220– 224, 248, 288,
306, 370, 381, 384, 388, 389, 393, 394, 411, 412, 447, 456, 461
Commercial Code . . . . . . . . . . . . . . . . . . . . . . . . . .21, 23, 27, 37, 51, 113, 114, 115, 117, 118, 123,
128, 131–134, 143, 150, 153, 159, 175, 217, 218, 220–222, 230, 241,
254, 257, 263, 272, 278, 282, 283, 306, 320, 323
Criminal Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 18, 21, 27, 33, 34, 37, 51, 88, 95, 97, 100,
201, 402, 426, 427, 428, 430–436
Code of Civil Procedure . . . . . . . . . . . . . . . . . . . 18, 21, 24, 27, 30, 56, 59, 63, 66, 68, 70, 71, 125,
409–411, 414–421, 423, 425, 458–462
Code of Criminal Procedure . . . . . . . . . . . . . . . . . .21, 27, 44, 52, 56, 65, 106, 436, 437, 439, 441
Law on
Access to Information Held by Administrative Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Acquisition of Land for Public Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107, 169
Adjustment of Labour Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Administrative Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27, 30, 42, 56, 405
Administrative Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30, 46, 47, 48
Agricultural Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 169
Aliens’ Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109, 110, 445
Anti–Monopoly Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21—25, 27, 47, 52, 58, 128, 129, 295,
327–332, 334–336, 339–345, 347–352, 354–356,
358–362, 377, 412, 426
Application of Law (Horei) (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452
Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 56, 68, 69
Architectural Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121, 154
Attorneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54, 78–79, 82–84
Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 296, 301, 302, 303
Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285, 286, 288
Book–Entry Transfer of Corporate Bonds and other Securities . . . . . . . . . . . . . . . . . . . . . . . . 238
Cabinet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 35, 36, 39
Certification of Public Interest Associations and Foundations . . . . . . . . . . . . . . . . . . . . . . . . . 124
City Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Civil Composition (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
Civil Conciliation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
xxiv Table of Legislation
Civil Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27, 140, 423
Civil Interim Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27, 413
Civil Rehabilitation (Minji–Saisei–Ho) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285, 288, 290
Civil Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Commodities Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .301, 302, 303, 306
Company Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 24, 27, 113, 117, 123, 217, 218, 222–228, 234,
236, 239, 241–244, 247, 248, 253, 255, 257–263,
272–274, 278–281, 283, 426, 447
Compensation by the State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122, 127, 195
Compensation for Loss caused by Nuclear Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116, 181
Compensation for Losses arising from Car Accidents. . . . . . . . . . . . . . . . . . . . . . . . . 116, 181, 195
Compensation for Losses caused by Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116, 181
Consumer Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117, 153, 162
Contracts of Security by Provisional Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166, 178
Copyright . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27, 364, 371, 373–375
Corporate Reorganisation (Kaisga Kosei Ho) . . . . . . . . . . . . . . . . . . . . . . . . . . .285, 288, 289, 290
Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 54, 55, 63, 74, 75, 412
Criminal Procedure with the Participation of Lay Assessors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Custody and Transfer of Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Customs Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Customs Tariff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364, 379, 380
Divided Ownership of Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Door–to–Door Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Elderly Persons Employment Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398
Elimination and Prevention of Involvement in Bid Rigging etc. . . . . . . . . . . . . . . . . . . . . . . . 344
Emergency Measures for the Restoration of the Functioning
of the Financial System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
Employment Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
Equal Opportunities in Employment for Men and Women . . . . . . . . . . . . . . . . . . . 382, 389, 390
Establishment of the Financial Services Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
Exceptions to the Civil Code on Means of Publicity concerning
Assignment of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Export–Import Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356
Financial Futures Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .297, 305
Financial Instruments and Exchange Law . . . . . . . . . . . . . . . . . . . .25, 27, 39, 299–307, 309–315,
318, 321–322, 412, 426
Financial Instruments Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161, 298, 303
Fishery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Foreign Exchange and Foreign Trade Law . . . . . . . . . . . . . . . . . . . . . . . 22, 39, 127, 294, 448, 449
Forestry Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33, 107
Fundamental Law on Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Futures Trade in Overseas Commodity Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303
General Associations and Foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124, 126
General Rules Regarding the Application of Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51, 453
Government Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27, 122
Government Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39, 108, 428
Habeas Corpus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Hypothec of Factories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116, 166, 174, 176
Hypothec over Automobiles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
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Immigration Control and the Recognition of Refugees . . . . . . . . . . . . . . . . . . . . . . . . . . 445, 446
Impeachment of Judges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Instalment Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Insurance Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301, 302, 303
Intellectual Property, Basic Law on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363–364
Intermediate Juridical Persons (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Investment Advisory Business (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Job Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Judicial Scriveners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80, 81
Juveniles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 433
Labour Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 21, 24, 27, 383, 386, 388, 393, 394, 398
Labour Relations Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382, 404
Labour Relations in Designated Independent Administrative
Juridical Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Labour Relations in Public Corporations (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Labour Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 21, 27, 52, 382, 383, 386–390, 392, 394
Large Retail Stores (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Layout of Semi–conductor Circuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372
Lease of Land and Houses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19, 116, 152, 169, 172, 173
Libel Act (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Limitation of Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Limited Liability Companies (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Limited Liability Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
Local Self–Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49, 50
Maintenance of Public Security (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 20, 87, 381
Measures for Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382, 384
Minimum Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390
Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Misdemeanours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Mortgage Securities Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
National General Mobilisation (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
Nationality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34, 102, 109, 443
Ordinance on Public Meetings (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Part–Time Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387
Patent Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 364, 365–371, 373, 375, 421, 422
Penalising Hijacking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Pharmaceutical Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33, 108
Planning Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Postal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Prevention of Capital Flight (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
Prevention of Delay in Payment for Subcontracted Work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
Prevention of Subversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94, 426
Prevention of Unjust Acts by Members of Gangster Organisations . . . . . . . . . . . . . . . . . . . . . 436
Private Schools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Proceedings on Personal Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62, 209
Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117, 160, 181, 199
Prohibition of Unlawful Access to Computers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Promotion of the Justice System Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Prosecution Review Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440
Protection of Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116, 173
Protection of Computer Information on Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
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Public Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33, 109
Public Prosecutor’s Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54, 77, 78
Public Security and Police Law (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19, 381
Publication Ordinance (Repealed). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Punishing Orgaised Crimes and Regulation of Proceeds from Crimes. . . . . . . . . . . . . . . . . . . 436
Recognition and Assistance for Foreign Insolvency Proceedings . . . . . . . . . . . . . . . . . . . . . . . 285
Registration of Immovables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Registration of Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Regulating the Commodity Investment Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
Regulation of Credit and Loan Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Regulation of Stalking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426
Regulations on Newspapers (Repealed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Religious Organisations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Restriction of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Rights of Foreigners on Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Road Traffic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51, 107
Secured Bond Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
Securities and Exchange (replaced by Financial Instruments
and Exchange Law) . . . . . . . . . . . . . . . . . . . . . . . 21, 23, 25, 266, 279, 293, 295,297, 299–301,
303–306, 309, 311–315, 317–319, 321
Securitisation of Assets through Special Purpose Companies . . . . . . . . . . . . . . . . . . . . . . . . . 306
Security over Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .174, 176
Seeds and Plants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
Special Measures against Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Special Measures on the Audit of Large Companies Limited by Shares . . . . . . . . . . .218, 220, 221
Special Measures on the Handling of Legal Business by Foreign Attorneys . . . . . . . . . . . . . . . . 70
Special Rules to the Civil Code concerning Electronic Consumer
Contracts and Electronic Notes of Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Specific Joint Businesses on Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303, 307
Statute on Judicial Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Succession of Employment Contracts in splitting of companies . . . . . . . . . . . . . . . . . . . . . . . . 269
Suretyship for Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Tax Attorneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Trade Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27, 364, 376
Trade Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27, 188, 382, 384, 386, 398–402, 404, 405
Trading in Financial Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
Trees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Trust Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125, 306, 307
Unfair Competition, against . . . . . . . . . . . . . . . . . . . . . . . . . . . 345, 364, 376, 377, 422, 428, 435
Unit Trusts and Investment Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306, 307
Unjust Premiums, Advertisements and Labelling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
Utility Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
Welfare of Working Women . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390
Workers Dispatch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382
Introduction
1. Japanese Law Viewed from Abroad
The study of comparative law has attracted academics in Europe and the United
States since the last century. In 1869, the Société de Legislation Comparée was
founded in France. Although the primary focus was usually on the comparison
of laws within Europe, or the comparison between the Anglo-American system
and the Civil Law system, legal systems outside the Common Law and Civil Law
system were not entirely ignored. Attempts were made by some pioneer com-
parativists to include laws outside Europe, including Japanese law, in their field
of research.¹ There has been a long tradition of the study of Chinese law in France
and Holland, but Japanese law failed to attract much attention from European
and American specialists of law in the pre-Second World War era.
This did not mean that the Japanese legal system had no links with either
Europe or the United States in this period. In the course of modernisation, which
began in the mid-nineteenth century, Japan relied heavily on advisers invited
from Europe in enacting laws and developing its system of legal education.
Japanese scholars were sent to Europe to study law and returned with extensive
knowledge, mainly of the Civil Law system.
The relationship remained basically unilateral; the Japanese kept learning from
European countries and there was a constant flow of knowledge of European law
into Japan, but there were only a few people in Europe or the United States who
were interested in disseminating knowledge of Japanese law in the West. Otto
Rudolff, a German legal adviser to Japan, was an exception. He translated the
Codes of the Tokugawa Shogunate in 1889. Works by J. H. Wigmore on the law
of the same period and by de Becker on the Commercial Code of Japan can be
considered major contributions in the dissemination of knowledge about Japanese
law.² Also some Japanese lawyers, namely Naojiro Sugiyama and Kōtaro Tanaka,
took part in various international activities in the field of comparative law.
After the end of the Second World War, the scope of the study of comparative
law expanded significantly in three directions. First, Eastern European countries
came under the control of the Soviet Union and China shifted to socialism. Thus,
the socialist legal system came to carry more weight than it did in the pre-war
¹ T. Gorai, ‘Influence du Code Civil français sur le Japon’, in Le Code Civil: Livre du Centenaire
(Paris, 1904), pp. 783–784.
² J. E. de Becker, Commentary on the Commercial Code of Japan (Yokohama, 1913).
Japanese Law. Third edition. Hiroshi Oda.

© Oxford University Press 2009. Published 2009 by Oxford University Press.
2 Introduction
period. The Cold War made the study of socialist law indispensable to the formu-
lation of policy towards the Eastern bloc. Secondly, the abolition of colonial rule
in Third World countries led to the emergence of various legal systems which are
copies of neither the Civil Law system nor the Common Law system. These legal
systems needed serious research. Thirdly, the Allied occupation of Japan neces-
sitated a comprehensive study of Japanese political and legal institutions. This
was enhanced later by the emergence of Japan as an economic super-power in the
1980s. The increasingly powerful Japanese economy resulted in a growing inter-
est not only in commercial law, but also in the cultural and historical background
of the Japanese legal system.
The United States was probably the first country where systematic studies in
Japanese law developed. Already during the war the United States, in anticipa-
tion of victory, had been promoting Japanese studies in order to formulate its
occupation policy. The study of legal institutions was one of the primary topics of
Japanese studies. Under the Allied occupation, American legal advisers worked
together with Japanese lawyers to reshape the Japanese legal system. The know-
ledge which they accumulated during this period has further developed the study
of Japanese law in the United States.
With this background and the close economic links with Japan, it is not sur-
prising that the study of Japanese law first developed in the United States rather
than in Europe. One of the earliest accomplishments was Law in Japan: The Legal
Order in a Changing Society, edited by Arthur von Mehren, which resulted from a
joint project of Japanese and American lawyers in 1963.
Interest in Japanese law also developed in Germany in the 1970s. Reflecting
the strong historical ties with Japan from the previous century, Japanese
law studies began in Hamburg and Freiburg. A series of Japanese law books
( Japanisches Recht) written mainly by Japanese lawyers and translated into
German were published in Freiburg. A biannual periodical Zeitschrift für
japaniesches Recht is published by the German-Japanese Lawyers’ Association
in conjunction with the Max-Planck Institute for Foreign and International
Private Law in Hamburg. It should be added that, in Australia, developing
commercial ties with Japan have led to the introduction of Japanese law courses
in several universities.
On the Japanese side, lawyers have become increasingly aware of the necessity
of enhancing the understanding of Japanese law in foreign countries. In 1967,
Japanese lawyers and American specialists in Japanese law began jointly publish-
ing an annual, Law in Japan. Furthermore, books written in foreign languages
by Japanese academics in their respective fields of speciality started to appear in
the 1970s.³ A major achievement in this respect was the ten-volume series Doing
³ For instance, Z. Kitagawa, Rezeption und Fortbildung des europäischen Zivilrechts in Japan
(Frankfurt/M, 1970).
Introduction 3
Business in Japan (loose-leaf) published in the 1980s which still continues to be

updated.⁴
In 1950, two books on comparative law were published in France. At that
time, there was still very little information on Japanese law available in any
foreign language. In the Traité de droit comparé by P. Arminjon, B. Nolde, and
M. Wolf, the influence of German law on Japan was emphasised and Japanese
law was characterised as German law in the Far East.⁵ This is probably because
the draft German Bürgerliches Gesetzbuch (hereinafter ‘BGB’) served as the
basis for the Japanese Civil Code.
The view that Japanese law is part of the Romano-Germanic family had already
been expressed in the early twentieth century by Nobushige Hozumi, who was a
Professor of Civil Law at the University of Tokyo. He divided major legal systems
into seven groups: Chinese, Hindu, Mohammedan, Roman, Germanic, Slavonic,
and English law. Referring to the Civil Code, he pointed out that Japanese law
had shifted from the family of Chinese law to the family of Roman law: ‘. . . the
new Japanese Civil Code stands in a filial relation to the European systems, and
with the introduction of Western Civilization, the Japanese civil law passed from
the Chinese Family to the European Family of law’.⁶
In contrast, Traité centenaire de droit civil comparé by René David, stressed the
affinity of Japanese Law with Chinese law.⁷ David later elaborated on this topic
in the Major Legal Systems in the World Today.⁸ Here, the connection of Japanese
law with the Romano-Germanic family of legal systems is acknowledged, but the
book still deals with Japanese law as one of the ‘Laws of the Far East’, together with
Chinese law, under the heading ‘Religious and Traditional Law’. The common
feature of the ‘Laws of the Far East’, according to David and Brierley, is that laws
in this part of the world are formally connected to either the Romano-Germanic
family or to the family of socialist law. But they proceed to point out that:
The reception of Western ideas and institutions, decreed by their rulers, has not wholly
eliminated those traditional ideas which were considered as morality and the social order.
For a long time yet modern law may very well remain a mere ‘veneer’, behind which the
traditional ways of acting, thinking and living will be perpetuated.⁹
This pattern of thought was followed in more recent works by K. H. Ebert as well
as K. Zweigert and H. Kötz. Ebert categorised Japanese and Chinese Law as Far
⁴ Z. Kitagawa (ed.), Doing Business in Japan (New York, 1980).

⁵ P. Alminjon, B. Nolde, and M. Wolff, Traité de droit comparé (Paris, 1950), Tome II, pp.
427–428.
⁶ N. Hozumi, Lectures on the New Japanese Civil Code as Materials for the Study of Comparative
Jurisprudence (Tokyo, 1904), p. 19.
⁷ R. David, Traité centenaire de droit civil comparé (Paris, 1950), pp. 388–389.
⁸ R. David and J. E. C. Brierley, Major Legal Systems in the World Today (London, 1968), pp. 20,
450–460.
⁹ Ibid.
4 Introduction
Eastern Law, but failed to produce any persuasive argument to support this.¹⁰
Zweigert and Kötz also classified Japanese law as part of the ‘Far Eastern Legal
Family’, together with Chinese law, and found the reliance on extra-judicial
methods of settling disputes to be a salient feature of this group. In their view,
positive law imported from foreign countries has not fully taken root in Japan
and China. Instead of recourse to the courts, people resort to informal procedures
of dispute settlement, characteristic of Confucianism, which discourages the
settlement of conflicts in public.¹¹
Presumably these authors based their views on the work of Professors
T. Kawashima and Y. Noda. In an article published in 1963, Professor Kawashima
pointed out as follows:
Traditionally, the Japanese people prefer extrajudicial, informal means of settling a
controversy. Litigation presupposes and admits the existence of disputes and leads to a
decision which makes clear who is right or wrong in accordance with standards that are
independent of the will of the disputants. . . . There is a strong expectation that a dispute
should not and will not arise; even when one does occur, it is to be solved by mutual
understanding. . . . Because of the resulting disorganisation of traditional social groups,
resort to litigation has been condemned as morally wrong, subversive and rebellious.¹²
Professor Noda went even further in his book, Introduction to Japanese Law:
Japanese generally conceive of law as an instrument of constraint that the State uses
when it wishes to impose its will. Law is thus synonymous with pain or penalty. To an
honourable Japanese the law is something that is undesirable, even detestable, some-
thing to keep as far away as possible. To never use the law, or be involved with the law,
is the normal hope of honourable people. To take someone to court to guarantee the
protection of one’s own interests, or to be mentioned in court, even in a civil matter, is a
shameful thing; and the idea of shame . . . will be the keystone to the system of Japanese
civilisation.¹³
Whether this notion of the ‘non-litigiousness of the Japanese’ is a myth or not has
been a focus of contention for some years. Serious doubts have been raised about
the validity of this notion.¹⁴ In the second edition of Zweigert and Kötz’s book,
the tone has slightly changed:
. . . it is clear that until well into the twentieth century these imported statutes had very
little practical effect on Japanese legal life. . . . But it would be wrong to overemphasise the
¹⁰ K. H. Ebert, Rechtsvergleichung: Einführung in die Grundlagen (Bern, 1978), S. 112–118.

¹¹ K. Zweigert and H. Kötz, Einführung in die Rechtsvergleichung auf dem Gebiet des Privatrechts,
erste Auflage, Bd. 1, Tübingen 1971, S. 431–434. Translated into English by T. Weir, An
Introduction to Comparative Law, vol. 1, (Oxford, 1977), pp. 362–365.
¹² T. Kawashima, ‘Dispute resolution in Contemporary Japan’, in A. von Mehren, (ed.), Law in
Japan (Ann Arbor, 1963), pp. 43–45.
¹³ Y. Noda, Introduction to Japanese Law (Tokyo, 1976), pp. 159–160.
¹⁴ J. O. Haley, ‘The Myth of the Reluctant Litigant’, Journal of Japanese Law, Vol. 4, pp.
576–578.
Introduction 5
Japanese preference for resolving disputes uncontentiously. Many people familiar with
Japan believe it to be a myth that the Japanese are reluctant to litigate.¹⁵
In the third edition, however, although the above-cited part remains, there is
a more substantial reference to the way ‘the Japanese tenaciously cling to their
old practices despite all changes in the circumstances of life’. The book proceeds
to present some ‘examples’ of disputes being resolved by ‘internal procedures’,
which seem to be rather exaggerated.¹⁶ However, according to a recent survey of
the users of civil procedure, 80 per cent of the respondents replied that the reason
for hesitating to engage in litigation was time and cost.¹⁷
On the other hand, David’s view on Japanese law, largely shared by Zweigert
and Kötz, regardless of its inappropriateness, deserves attention since it seems
to represent a notion common to foreign observers. His view is essentially that
firstly, Japanese law has been influenced by various foreign legal systems, mainly
Romano-Germanic and American. Secondly, due to the persistence of traditional
morals and values these ‘imported’ modern legal systems did not fully succeed in
taking root in Japanese society. Therefore, thirdly, ‘the question is still very much
open whether behind this facade of westernization, Japan really has undergone
any kind of significant transformation and whether it has accepted the idea of
justice and law as understood in the West’.¹⁸
It is natural in a way to imagine frictions arising between imported foreign
laws on one hand and traditional morals and values on the other. However, in
Japan, in the period of modernisation, foreign law was imported and accepted
fairly smoothly without any significant resistance. The gap between modern
codes based upon foreign law and social reality in Japan has not been as wide as is
believed by foreign observers.
In every legal system, there is a discrepancy between the law in books and the
law in action. This applies to Japanese law as well, but the assumption that this
gap is wider in Japan than in other countries simply because foreign law was
introduced to a ‘traditional’ society cannot be substantiated. In order to clarify
this matter, it is necessary to examine the way in which Japan has imported and
digested foreign law in the modern period.
¹⁵ K. Zweigert and H. Kötz, Einführung in die Rechtsvergleichung auf dem Gebeit des Privatrechts,
zweite Auflage, Tübingen 1984, S. 416–419. Translated into English by T. Weir, An Introduction to
Comparative Law, 2nd edn (Oxford, 1988), pp. 370–372.
¹⁶ Zweigert and Kötz, ibid., dritte Auflage (Tübingen, 1996), S. 294–296. Translated into
English by T. Weir, An Introduction to Comparative Law, 3rd edn (Oxford, 1998), pp. 300–302.
Incidentally, the first edition of the present book seems to have been misquoted in Zweigert and
Kötz’s third edition. The reference to the Centre for the Settlement of Traffic Accident Disputes
was not meant to demonstrate the traditional attitude of the Japanese in avoiding litigation and
resorting to ‘internal procedures’. The present author has made it clear in the book that since court
practice is highly standardised in this area, parties agree to have the dispute settled in a quicker and
less expensive way. It is also made clear that attorneys do get involved in the activity of the Centre.
¹⁷ ‘2006 nen Minji-soshō Riyōsha-Chōsa no Bunseki (Analysis of the Survey of the Users of the
Civil Procedure: 2006)’, Jurist, No.1348, p. 198.
¹⁸ David and Brierley, supra, p. 456.
6 Introduction
Foreign law was received into Japan in three different stages. The first stage was
in the seventh and eighth centuries when Japan imported the Chinese political
and legal system. The second and third stages are of particular significance, since
these two stages have direct bearing on contemporary Japanese law.
The second stage was in the process of industrialisation after the overthrow of
the Tokugawa Shogunate in the late nineteenth century and the early twentieth
century. During this period of modernisation European law, namely the French
and German codes, were imported into Japan and served as a model for the major
Japanese codes.
The third stage began after the Second World War and continued during the
period of the Allied Occupation. The Constitution was heavily influenced by the
US Constitution and some laws were amended or replaced by laws modelled on
US law. Nevertheless, the nature of Japanese law as part of the Civil Law system
did not really change.
Unlike some countries under colonial rule, the reception of foreign law in Japan
occurred without any substantial resistance. Although modernisation began in
response to both pressure from foreign countries to open up and the desire of
Japan to renegotiate unequal treaties, the need for modernisation itself was never
doubted. The government’s slogan of emulating and surpassing Western powers
was shared by most political leaders and largely supported by ordinary people.
Therefore, psychological barriers to the reception of foreign law were minimised,
making the implementation of laws modelled on foreign laws easier than in coun-
tries where foreign law was imposed from above by colonial rulers. In the absence
of commitment to a specific country, the Japanese legislature seldom carbon-
copied foreign legislation in its entirety without considering its adaptability to
Japanese society. At the very beginning of the modernisation there were attempts
to translate French Codes and implement them directly, but these attempts were
quickly abandoned and a more prudent approach prevailed.
The reception of foreign law in Japan was selective, i.e. it was introduced only
insofar as it met specific social demands at the time. It is often pointed out, for
instance, that the present Civil Code is primarily influenced by German law, yet
it is neither a replica of the draft German BGB nor even primarily influenced by
the German Code. In fact, in the process of preparation, French law, German law,
and English law were all studied, and the Code incorporated the parts considered
to be most suitable, regardless of the source. One of the authors of the Code later
stated that legislative materials were collected from all over the civilised world
and that the Code was ‘a fruit of comparative jurisprudence’.¹⁹
The legislature in the period of modernisation did not fail to take into account
the existing customs and conventions in Japan, especially commercial practice.
Naturally, some traditional customs and conventions needed to be abandoned
for the sake of modernisation, but justifiable practices were preserved under the
¹⁹ N. Hozumi, supra, pp. 21–22.

Introduction 7
new regime. In order to meet specific conditions in Japan, foreign law was often
modified, sometimes to the extent that its origin became difficult to identify. This
careful consideration of social reality existing in Japan minimised the friction
between the new laws and established social practice.
Although modern Japanese law has been substantially influenced by for-
eign law, particularly German and French law, Japan has not taken over foreign
legal institutions without considering their adaptability and suitability to Japan.
Foreign law was carefully examined in light of the existing social reality of Japan,
and only that which met the specific requirements of the day was accepted, often
with substantial modification. This cautious approach still did not eliminate
the possibility of discrepancy between law and reality. In such cases, it was not
uncommon that a different practice which was not always compatible with the
law emerged. This can be seen, for instance, in the area of atypical real securities,
where a body of case law which was different from the statutory law developed.
However, once established, these practices were endorsed by the court, if not by
the legislature, and became fully compatible with the law.
In this way, Japan has been fairly successful in assimilating foreign laws and
transplanting them on different soil. The gap that initially existed between the
‘imported’ laws and social reality has been filled in one way or another, and statu-
tory laws are duly implemented and generally enforced. Therefore an overempha-
sis on the disparity between law and practice is often misleading and results in
‘mystification’ of Japanese Law.
It should be added that in the past two decades, in the process of the ‘regula-
tory reform’, the above prudent approach seems to have given way to the need
for urgent reform. An example is the successive amendments to Japanese com-
pany law, which culminated in the enactment of the 2005 Company Law. In this
process, some components of the US system were transplanted into Japan, argu-
ably without sufficient infrastructure. This is demonstrated in the takeover law,
where various defensive measures were made available without necessary rules to
regulate their use.
2. Anti-Positivism in Japanese Law
If any uniqueness is to be found in Japanese law, it is not in the approach to

dispute settlement, but rather in the marked anti-positivist approach in the appli-
cation of law. To be sure, this may not be unique only to Japanese law, but may be
shared to a certain extent in the Civil Law countries.
Judges in Japan are fairly active in creating law, and may even go further than
the judges in the Anglo-American jurisdictions in some respects. In cases where
there seems to be no alternative way to achieve an equitable solution, the court
may even deviate from the wording of statutory law rather than adhering to the
literal interpretation of the statutes.
8 Introduction
For instance, in cases involving loans, there is an explicit statutory provision to
the effect that the interest exceeding the limit set by the law which the debtor has
paid voluntarily is not subject to reimbursement. However, when the debtor paid
interest above this limit and later claimed reimbursement, the Supreme Court
ruled that the excess amount should be regarded as repayment of the principal
sum, and if the principal and the statutory interest have been fully repaid, the
excess amount should be returned to the debtor.²⁰ One foreign observer charac-
terised the role of the court in this respect as ‘judicial activism’.²¹
Another example in the area of civil law is the termination of a continuous
contract. In Japan, a majority of contracts between companies are of a long-
term nature. Usually, the contracts are for a one-year period, but are automatic-
ally renewable, unless either party objects one month in advance. Theoretically,
whether to renew the contract or not is left to the parties. However, for example,
in cases of distributorship arrangements, the court denies the right of the
manufacturer to refuse renewal of a long continuous contract under some cir-
cumstances, unless there is a breach of mutual trust and a justifiable ground to
refuse renewal.²²
In the area of labour law, according to the Civil Code, the employer is entitled
to terminate an employment contract without a fi xed period at any time. The
termination takes effect in two weeks (Art. 627). The Labour Standards Law
extended this period to one month. However, the doctrine of unfair dismissal has
developed by case law. Termination of the contract by the employer is not allowed
as an abuse of rights, if a reasonable ground does not objectively exist, or if the
dismissal is not compatible with socially accepted common sense.²³ This doctrine
was later incorporated in the Labour Standards Law, and then, recently, in the
newly enacted Labour Contract Law (Art. 16). In family law, although there is
no specific restriction in the Code on the person who is entitled to initiate divorce
proceedings, the court has long maintained that the spouse who is responsible for
the collapse of the marriage is not entitled to initiate the proceedings despite the
absence of any statutory basis.
General clauses contained in the Codes, such as the public order and good
morals clause and the provision on good faith and fair dealing often serve as the
²⁰ Judgment of the Supreme Court, 13 November 1968, Minshū 22-12-2526. See Hironaka,
‘Wagatsuma Minpō-gaku to Minpō no Hanseitei-hō-teki Kaishaku (Prof. Wagatsuma’s Theory
and Anti-Literary Interpretation of the Civil Code)’, Jurist 1996 vol. 1096, pp. 74–83.
²¹ A. M. Pardieck, ‘Japan and Moneylenders—Activist Courts and Substantive Justice’, Pacific
Rim Law and Policy Journal, vol. 17, No. 3, p. 532.
²² For example, judgment of the Tokyo District Court, 28 August 2000, Hanji, No. 1737,
p. 41. Decision of the Sapporo High Court, 30 September 1987, Hanji, No. 1258, p. 76. The latest
judgment is of the Fukuoka High Court, 19 June 2007, Hanta No. 1265, p. 253.
²³ K. Sugeno, Shin Koyō-Shakai no Hō (New: Law of the Working Society), Supplemented Edition,
Tokyo 2004, pp. 64–66.
Introduction 9
basis of such law creation.²⁴ The extensive use of these general clauses is a feature
which Japanese law shares with German and French law.
Naturally, one may ask whether such reliance on general clauses does not affect
the stability of the law. In many areas where general clauses are utilised, a body
of case law has been accumulated and a set of criteria is largely available. After
all, these general clauses are designed to serve as a channel to reflect the values
commonly shared by the public. The fact that judges in Japan are ‘career’ judges,
and that as a result court practice is fairly standardised, may further reduce any
concern about legal stability.
It should be added that, in general, legal training in Japan is against positivist
thinking like that of the Pandektenists. Legal positivism was widely supported
in the pre-war period in Japan, but even then there was some opposition to it.
The German Freirechtslehre in pursuit of lebendes Recht, as opposed to positivistic
interpretation of law, had a significant influence in Japan before the war. This was
reinforced after the war by the introduction of sociology of law from the United
States. At present, it is generally accepted that the interpretation of law should not
be limited to literal or logical interpretations; teleological and sociological inter-
pretation is equally important.
Presumably influenced by the American jurisprudence of realism, there is an
influential view which generally acknowledges that judges make value judgments
in resolving specific cases. Judges identify the interests involved in the dispute
and make a decision as to which interest should be protected more than others
by weighing conflicting interests. In this process various factors are considered,
including the intention of the legislature, and the intended goal of the statute. It
is understood that the final decision of choosing the most appropriate alternative
is a value judgment on the part of the judge, who substantiates or rationalises the
conclusion by applying a suitable norm for the purpose.²⁵
Whether this view reflects the true state of affairs may be arguable, but Japanese
judges certainly seem to adopt a more liberal and flexible attitude towards statutory
interpretation than their counterparts in the Anglo-American jurisdictions.
²⁴ T. Uchida, Keiyaku no Jidai: Nihon Shakai to Keiyaku-hō (The Era of Contracts: Japanese
Society and the Contract Law) (Tokyo, 2000), p. 84. See also H. Tanaka, The Japanese Legal System
(Tokyo, 1974).
²⁵ E. Hoshino, ‘Minpō niokeru Rieki Kōryō-ron Minpō Ronshū, (Treatise on Civil Law), Vol. 8
(Tokyo 1996), pp. 203 –213.
1
The History of Modern Japanese Law
1. The Period of Modernisation
Foreign law was received into Japan in three different stages. The first stage was
in the seventh and eighth centuries, when Japan imported the Chinese political
and legal system.
The second stage occurred between the overthrow of the Tokugawa Shogunate
in the mid-nineteenth century and the early twentieth century, when the indus-
trialisation of the country was accomplished. In this period of modernisation,
European law—namely the French and German codes—was imported into
Japan and served as a model for the major Japanese codes. The third stage began
after the Second World War and continued during the period of the Allied
occupation. During this stage, some laws were amended or replaced on the basis
of US law. Nevertheless, the strong influence of the Civil Law system remains
today. The second and third stages are of particular significance, since these two
stages have direct bearing on contemporary Japanese law.
The modernision process in Japan started with the fall of the Tokugawa
Shogunate, which ruled the country for two and a half centuries.¹ In 1867 the
Emperor declared that imperial rule should be restored. A new government was
first formed on the model of the archaic dajōkan system, which dates back to the
eighth century.
When major reforms took place after the fall of the Shogunate, the existing
social and economic system in Japan was fairly well developed and certainly
ready for further development. For instance, a money-based economy had devel-
oped to such an extent that large mercantile and money-lending capital enjoyed
dominant power in the economy. This enabled the introduction of the modern
banking system under the new government. Another example is the ownership
of land. Despite lacking the modern concept of land ownership, some rights
of land-holding had developed before the modernisation, and land was traded
¹ For the history of Japanese law in English, see R. Ishii, A History of Political Institutions in
Japan (Tokyo, 1980). For the history after 1868, see W. Röhl (ed.), History of Law in Japan since
1868 (Leiden, 2005).

14 The Basis of the System
extensively under the Tokugawa Shōguns’ rule. This made it possible to introduce
a modern system of land ownership smoothly.²
Despite their initial chauvinism, the ruling elites quickly realised that a
knowledge of foreign civilisations and use of the advanced technology that
had developed in the West were indispensable to the modernisation of Japan.
Modernisation was considered to be an urgent task if Japan was not to be col-
onised like many other Asian countries. Therefore, after a brief return to the
ancient dajōkan system, the new government turned to European countries for
a model.
While in the Charter of Oath of the new regime in 1868, the Emperor had
proclaimed that public opinion should be consulted, this had merely meant
that territorial lords should be consulted in decision-making. However,
inspired by the parliamentary systems in Europe and strengthened by disillu-
sionment and discontent with the autocratic system of the new government,
a movement to establish a publicly elected parliament gained wide support in
the 1870s. Different trends were discernible in this movement—the Popular
Rights Movement ( jiyū-minken-undō). Inspired by Locke, Mill, Rousseau, and
Bentham, a charter of one of the earlier organisations declared that all Japanese
were equally endowed with rights to life, liberty, property, livelihood, and the
pursuit of happiness—rights that ‘no man can take away’.³ The movement had
wide support; at one stage, 303 societies emerged in the provinces around Tokyo,
at least 120 in the north-eastern region, and approximately 200 in western and
south-western Japan.⁴ This eventually led to the Emperor’s proclamation in 1881
that a national diet (parliament) would be established, and a constitutional mon-
archy created by 1890.
In the meantime, the government became more autocratic in the early 1880s.
Already in the mid-1870s, the government had enacted the Libel Act and the
Regulations on Newspapers in order to limit the freedom of speech, attempting
to keep dissatisfied people under control. A major rebellion by former samurais
in Satsuma in 1877 certainly influenced the course of events. It was, in a way,
impossible to implement unpopular economic measures and at the same time to
grant political freedom to the people.⁵ The Ordinance on Public Meetings, which
significantly restricted such meetings, was enacted in 1880. Further restrictions
on public meetings were introduced in 1890, coinciding with the opening of the
Imperial Diet.
² In general, see C. Nakane et al. (eds), Tokugawa Japan: The Social and Economic Antecedents of
Modern Japan (Tokyo, 1990).
³ M .B. Jansen (ed.), The Emergence of Meiji Japan (Cambridge, 1995), p. 241.
⁴ Ibid. p. 243. See also D. Irokawa, Kindai Kokka no Shupppatsu (The Emergence of the Modern
State), Revised edition (Tokyo, 2006), pp. 126–159.
⁵ J. Banno, Taikei Nihon no Rekishi (Compendium of the Japanese History), vol. 13 (Tokyo,
1996), pp. 78–79.
The History of Modern Japanese Law 15
After the Emperor’s proclamation of the intention to introduce constitutional

democracy in 1881, the popular rights movement more or less lost its momen-
tum. Moderate factions developed into political parties, while some factions
ended up in outright rebellion caused by the serious economic difficulties expe-
rienced by people in rural areas. Such rebellions were quickly suppressed by the
government.⁶
In 1889, preceding the opening of the Imperial Diet, the first Constitution
of Japan was ‘granted’ to the subjects by the Emperor. The enactment of a
Constitution was a development related to the establishment of the Imperial Diet.
Already in the 1840s the Dutch Constitution had been translated into Japanese,
followed by a translation of the French Constitution in 1873. Some Japanese
therefore had a vague idea about the role of a constitution. The Senate had drafted
a constitution commissioned by the Emperor in 1876, but this was considered to
be unsuitable for Japan and was abandoned. It was the intention of the govern-
ment to proclaim the divine origin of the Imperial Family and the sovereignty of
the Emperor, but the draft had been unsatisfactory from this point of view.
When the Popular Rights Movement was at its height, various private drafts
of the constitution, primarily of a British parliamentary type, appeared. However,
Tomomi Iwakura, who was a councillor at that time, considered it more appropriate
to enact the constitution on the initiative of the Emperor. In 1882, Hirobumi Itoh,
later to become the first Prime Minister, was sent to Europe to study the constitu-
tions of European countries. Germany was chosen as the primary place of research.
Itoh consulted F. J. Stahl in Berlin and Rudolf von Gneist in Vienna, both of whom
represented the conservatives among German and Austrian scholars. Germany was
intentionally selected as a model, because it was a relatively backward country at
that time in Europe, but had just been unified and its situation was considered
to resemble Japan’s. In Germany, the Kaiser of the German Empire apparently
had strong power and authority, while the British and French constitutions were
regarded as being too liberal and democratic.
In contrast to the private drafts, which were proposed by the supporters of
the Popular Rights Movement, there was a view which supported an Emperor-
centred, semi-religious political system. Thus, Eifu Motoda’s draft constitution
provided for the divine character of the Imperial Family, as well as its perpetu-
ity as the sovereign of Japan. It was a clear proclamation of Emperor-centred
absolutism.
Itoh prepared a draft constitution with the assistance of a German adviser,
Hermann Roesler, after his return from Europe. Roesler defended a constitu-
tional system that was more conservative than the Prussian Constitution of 1850,
by eliminating even the limited democratic institutions that had been imported
into Germany from England via France and Belgium. The Japanese members
⁶ K. Nakamura, The Formation of Modern Japan: As Viewed from Legal History (Tokyo, 1962),
pp. 48–56.
who participated in the drafting process went even further. One point of dis-
agreement was the status of the Emperor. Roesler refused to give the Emperor
a religious status, at least in the Constitution, while the Japanese side intended
to provide for the eternity of the Emperor’s rule. On the other hand, Roesler
defended universal suffrage for the Lower House.⁷
There was a firm belief on the part of the Japanese participants that the power
of the Emperor should be left as free as possible from any control exercisable by
the Diet. The Imperial Family was to be left outside the realm of the Constitution.
To this end, rules concerning the succession of the Emperor and other matters
regarding the Imperial household were left outside the Constitution, and a sep-
arate Act on the Imperial household (kōshitu tenpan) was adopted. This Act was
not even promulgated, ostensibly because it was a private Act of the Imperial
household.
The draft constitution was discussed in the Privy Council, rather than in the
Senate. People were not informed of its contents until the day of promulgation.
The Constitution began by proclaiming the sanctity and inviolability of the
Emperor and the perpetuity of his rule. Accordingly, the legend that an ances-
tor of the Emperor had founded the nation around 2600 BC, which was never
been substantiated historically, gained official endorsement. The Emperor was
the sovereign who ruled the country in accordance with the provisions of the
Constitution. However, a wide range of matters was left to the prerogative of the
Emperor. The Imperial Diet was there merely to assist and support the Emperor.
Laws were enacted by the Diet but needed imperial approval. The Emperor also
had broad power to issue imperial edicts. It should be added that only 1.1 per cent
of the populace even had a vote in this Diet, and with limited power.
Cabinet ministers were appointed by the Emperor, while the Diet had no say
in the selection. Ministers were responsible to the Emperor, not to the Diet. Later
it became constitutional practice that the power of the Emperor as the supreme
commander of the armed forces remained outside the control of the Diet and the
Cabinet.
The Constitution had a limited list of the ‘rights and duties of subjects’. These
included freedom of residence, rights not to be arrested and detained without a
legal basis, freedom of correspondence, freedom of religion, and freedom of asso-
ciation and expression. However, these rights and freedoms were guaranteed only
within the framework of statutory laws, i.e. the legislature was free to enact laws
that restricted those rights and freedoms. Indeed, the Publication Ordinance,
which was enacted in 1893, accommodated a system of strict censorship. Freedom
of association was also severely restricted by later legislation. Freedom of religion
presupposed the supremacy of Shintoism.
⁷ The history of this constitution is given in T. Fukase, ‘Meiji kenpō Seitei o meguru Hō-shisō
(Legal Thoughts concerning the enactment of the Meiji Constitution)’, in Y. Noda and J. Aomi
(eds), Gendai Nihon Hō-shisōshi (History of Modern Japanese Legal Thoughts) (Tokyo, 1979),
pp. 164–214.
Supporters of Emperor-centred nationalism were not fully satisfied with

the relatively secular nature of the Constitution. They favoured an even more
religious and ethical constitution. In order to appease them, the Imperial
Rescript of Education was promulgated by the Emperor before the enactment
of the Constitution. The Rescript was a mixture of revived Confucianism and
Shintoism targeted against westernisation. It proclaimed that loyalty to the
Emperor, the Confucian obligation of filial piety, and obedience were the essence
and virtue of the nation. Subjects were to offer themselves courageously to the
State—which was identified with the Emperor—should any emergency arise.⁸
This was intended to be the fundamental ethical code of the nation, and indeed
served as such until the end of the Second World War.
It should be noted that the combination of Shintoism and the Emperor’s rule
with elements of Confucianism had not always been the norm before the restor-
ation of the Emperor’s rule in 1867. There were instances where former emperors
retired to a Buddhist temple, and some emperors were enthroned in a Buddhist
manner. In fact, Shintoism and Buddhism were not necessarily strictly demar-
cated. There was a school of thought maintaining that the supreme goddess of
Shintoism was a reborn Buddha, and another school of thought reversing this
order—Buddha was the reborn goddess. The government formed after the fall
of the Tokugawa Shogunate adopted a policy of favouring Shintoism in order to
strengthen the authority of the Emperor. Shintoism, which had largely been a
spontaneous religion of the people, emanating from ancestor worship, was thus
transformed into a State religion.⁹
The enactment of the Constitution, together with the introduction of the
cabinet system and the opening of the Imperial Diet, marked the consolidation
of the new regime. With the establishment of the new regime, the government
was in urgent need of a systematised legal system to replace the obsolete feudal
law. Laws of the previous period were unsystematic and mostly differed from one
domain to another. In order to consolidate the rule of the Emperor, a powerful
and highly centralised political system was required. Codified law was to play a
significant role to support such a system.
There was another reason to develop a modern system of law. The Shogunate
had no choice but to sign unequal treaties with foreign countries at the end of its
reign. These treaties had imposed unfavourable terms on Japan, such as judicial
immunity for foreigners, primarily because the Japanese legal system was thought
to be insufficiently developed to be applied to them. Japanese rulers considered
it necessary to modernise the legal system in order to convince foreign countries
that there was no problem in acknowledging Japanese jurisdiction over foreigners
in Japan.
⁸ R. Storry, A History of Modern Japan, revised edition (Harmondsworth, 1982), p. 119.

⁹ A. Yoshie, Shinbatsu-Shūgō (Syncletism of Shintoism and Buddhism) (Tokyo, 1996), p. 192.
The Emperor’s government initially looked towards Chinese law for a model.
The first criminal code—shinritsu-kōryō—of 1870 was primarily based upon the
ritsuryō codes of the seventh century, as well as the laws of Ming and Ching China.
However, the ritsuryō and Chinese codes proved to be obsolete and unsuitable for
a nation aspiring to achieve equal status with European countries in its economic
and military strength. It was only natural that political leaders turned to Europe
for a better model.
In fact, despite its long isolationist policy, some European political and legal
ideas were already known to the Japanese under the Tokugawa Shogunate
through the Dutch. For instance, the idea of natural law was imported into Japan
from Holland in the early nineteenth century. However, it was French rather
than Dutch law which first influenced Japanese law. France was considered to
have the most developed codified legal system at the time when the Emperor’s
government started looking for a model in the 1870s. The first Minister of
Justice, Shinpei Etoh, was particularly in favour of French law, and had French
codes translated into Japanese. Two advisers from France, George Boussquet and
Gustave Boissonnade, helped the Japanese to understand the French system.
The first Criminal Code, enacted in 1880, was primarily based upon the French
Code, though with some influence from the Belgian and Italian codes. The earl-
ier judicial system, including the system of practising attorneys, closely reflected
the French system. The first Code of Criminal Instruction, enacted in 1880, was
also a replica of the French Code.
This period of French influence did not last long. There was a gradual shift
towards German law in the 1880s. The fall of Etoh was not the only cause of this
shift: it was the difference between the political systems of these countries that
really mattered. In light of the Popular Rights Movement, which demanded the
introduction of a democratic parliamentary system, the government presumably
developed some reservations about the French system. The German constitu-
tional monarchy suited Japanese requirements, since the Kaiser was relatively free
from parliamentary control. Moreover, Germany was in the process of enacting
its own codes and therefore had the most recent codified laws. The adoption of
the Constitution based on the German system was the final move away from
French and towards German law.
First came the Code of Civil Procedure of 1890, which followed the German
and Austrian model. The Commercial Code was drafted with the assistance of
a German adviser and was promulgated in the same year. However, together
with the Civil Code, which was based upon the Code Civil, the Commercial
Code was caught in a fierce controversy and it took another decade for the
Code to take effect. The German influence was not limited to newly enacted
laws. Some earlier laws of French origin were replaced by new laws of German
origin. Thus, the Law on Court Organisation of 1890 partly replaced the
Code of Criminal Instruction. The Criminal Code was replaced by a new
Code in 1907.
The history of the Civil Code is much more complicated and is dealt with in a
separate chapter below. It is sufficient to mention here that the original Code was
prepared by a French adviser, Gustave Boissonade, and was promulgated in 1890,
but was abandoned in the face of strong opposition. A new Code, based primarily
on the Pandekten system, was finally enacted in 1896–1898.
The enactment of the major codes was completed in the 1890s. In the mean-
time, legal education had developed rapidly. The Ministry of Justice founded a
school of law in 1871. French law was primarily taught there, while in Kaisei
School, which dated back to the Tokugawa period, lectures on English law were
given. These schools merged and became the Law Faculty of the University of
Tokyo. Private schools of law were founded in the same period. Lectures were
initially given in foreign languages, since it had been difficult to translate legal
concepts of European origin into Japanese. It was only in the 1890s that it became
possible to give lectures in Japanese.¹⁰
In the late nineteenth century Japan embarked on a rapid industrialisation
process under the slogan ‘enrich the country and strengthen the army’. The devel-
opment of the economy created a considerable gap between the wealthy indus-
trialists on one hand and deprived peasants and urban workers on the other.
Instances of social unrest amongst poor peasants and the urbanised poor began
to increase in the late nineteenth century. The government took legislative meas-
ures to control such unrest and also to put workers’ and peasants’ movements
under control.
First, in order to protect the rights of those in weaker social positions, laws
such as the Law on the Lease of Land and the Law on the Lease of Houses were
enacted in 1922. Secondly, a conciliation procedure was introduced for settling
disputes concerning arable land tenancy and labour. It was hoped that the intro-
duction of conciliation would mitigate social friction. At the same time, laws
aimed at controlling political and labour movements were enacted. The Public
Security and Police Law of 1900 proved to be effective in controlling labour
movements. This was replaced by the Law on the Maintenance of Public Security
in 1925. Those who organised or knowingly participated in an organisation that
purported to change the State constitution or to deny private property were to
be penalised by a maximum of ten years’ imprisonment. The Law was amended
in 1928: those who created organisations which purported to change the funda-
mental structure of the nation, and leaders of such organisations, could now be
sentenced to death.
In terms of internal politics, there were some developments in favour of
strengthening democracy in the 1910s. Some political parties developed and there
was a spell of party cabinets—a cabinet supported by a political party within the
Diet. Voting rights for men were introduced (women had to wait until the end of
¹⁰ University of Tokyo, Tokyo-Daigaku Hyakunen-shi (Centenary of the University of Tokyo)

(Tokyo, 1984).
the Second World War). However, party cabinets proved to be powerless in the
face of growing interference by the military. The Diet gradually turned itself into
a ceremonial body supporting the invasion of China, and eventually the Second
World War.
After the start of the war between China and Japan in 1932, the remains of
embryonic democracy in Japan were removed. Japan withdrew from the League
of Nations in 1933. Two successive rebellions by army officials, the second of
which involved battalions of the army, finally led to the demise of civilian rule
in 1936. An official creed of the Emperor as a sacred entity—a descendant of the
sun goddess demanding selfless devotion of people—was promoted. Deviance
from the official ideology was not tolerated. Freedom of thought and expression
were severely restricted by the Law on the Maintenance of Public Security, which
was amended to make the punishment even more severe. This imperial totalitarian
regime lasted until the eventual defeat of the country in 1945.
2. Post-War Reforms
The third stage of the reception of foreign law took place after the Second
World War. The War ended with the acceptance of the Potsdam Declaration
in 1945. Japan was placed under the control of the Supreme Commander of
the Allied Powers (SCAP). The occupation took the form of indirect mili-
tary rule, i.e. the Japanese government was allowed to function under supervi-
sion by the SCAP. The Occupational Forces were overwhelmingly American,
and reforms were therefore carried out under a strong American influence.
Demilitarisation and democratisation were the fi rst steps taken by the Allied
Forces. The armed forces were dismantled, and suspected war criminals pros-
ecuted. Those responsible for promoting the War were expelled from their
positions. The Law on the Maintenance of Public Security was abolished and
political prisoners were released. It was proclaimed that Shintoism was to be
separated from the State.
The Allied Forces recommended five major reforms in 1945: equality of men
and women, encouragement of trade unions, liberalisation and democratisation
of education, liberation from autocratic rule, and democratisation of the econ-
omy. This was followed by a directive on agrarian reform. As for gender equality,
part of the Civil Code that dealt with family law and succession underwent a total
revision. Women were given the vote for the first time in the election of 1946.
Concerning labour law, three major labour laws, which enhanced the rights of
the workers, were promulgated. The educational system also underwent a sig-
nificant change. Education in Shintoism and Confucian ethics was abolished.
The Fundamental Law on Education was enacted in 1947 and emphasised peace,
justice, and respect for individuals. Democratisation of the economy was realised
by the dissolution of business conglomerates (zaibatsu), which had dominated
the economy. The Anti-Monopoly Law (competition law) was enacted in 1947 in
order to prevent monopolisation and to maintain fair competition.
These measures signified a radical change of the then existing political,
economic, and social system and almost amounted to a revolution. Civilian
experts and advisers who accompanied the military from the United States played
a significant role in shaping these reform policies.
These reform measures were embodied in the Constitution enacted in 1946.
This Constitution, which remains in effect today, has introduced significant
changes in the political and social system of Japan. First, it was proclaimed that
sovereignty rested with the people and not the Emperor. The Diet elected by
universal election became the supreme body of State power instead of the advis-
ory body it had been. The Emperor became a ‘symbol of the state and the unity
of people’ and was deprived of any political power. Secondly, the Constitution
provided for the renunciation of war as a sovereign right of a nation and the use
of force or threat as means of settling international disputes. After the dissol-
ution of its armed forces in 1945, Japan did not maintain any military force for
some years. Thirdly, the new Constitution incorporated a Bill of Rights, which
was far more extensive than that of the previous constitution, and safeguarded
in a more secure way; judicial review was introduced in order to guarantee these
rights.
The Constitution and most of the other laws enacted during the occupation
had been strongly influenced by US law. For instance, the three major labour
laws, the Code of Criminal Procedure, the Securities and Exchange Law, and the
Anti-Monopoly Law were all strongly inspired by US law. This was only natural,
since legal advisers to the SCAP were primarily Americans; some of them were
keen ‘New Dealers’. On the other hand, most of the major codes dating back
to the pre-war period remained intact. The Criminal Code, the Code of Civil
Procedure, and the Commercial Code were left without any significant amend-
ment. The Civil Code also remained in force, except Parts four and five on family
law and succession respectively.
As early as 1948 there was a shift in occupation policy, caused by the increas-
ing tension between the United States and the Eastern Bloc. Policies such as
disarmament, encouragement of the trade union movement, and dissolution of
business conglomerates were thought to have gone too far. With the outbreak
of the Korean War and the development of the Cold War, government pol-
icy shifted from disarmament to rearmament. The Police Auxiliary Force was
founded, and later developed into the Self Defence Force. Today the Japanese
Self Defence Force is reputed to be one of the most powerful armed forces in Asia.
In 1951 Japan signed the Peace Treaty with the Allied Nations which took effect
the following year, and marked the end of the occupation. At the same time the
US–Japan Security Treaty with its bilateral duty of defence was signed. The first
US–Japanese Security Treaty was signed in 1951; it has been renewed up to the
present day.
The policy of ‘rectifying the excess’ of the initial reforms continued to a certain
extent after the end of the occupation. For instance, the Anti-Monopoly Law of
1947 was substantially amended in 1953, ‘in order to adapt it to the situation in
Japan’.
This is not to say that the ‘pre-war system’ was restored after the end of the
occupation. After all, most Japanese were not reluctant to accept measures
adopted on the initiative of the Allied Forces. On the contrary, people who had
suffered under the police State before 1945 actually welcomed these measures.
Radical changes introduced by the Allied Forces were successfully put into prac-
tice without overt resistance from the general public. Political and social values
promoted by the SCAP were embedded firmly in the minds of most Japanese
and are considered to be almost unchangeable. This has probably worked
against various attempts to bring substantial changes to the achievements of the
post-war reforms. Proposals to amend the Constitution (which was ostensibly
imposed by the Americans) have never really gained popular support. There has
been not a single amendment to the Constitution so far. However, since the
mid-1990s, there are views that the Constitution, after four decades, should be
amended, particularly in order to let Japan play a larger role in international
peace-keeping operations.
3. Contemporary Reforms
Almost half a century after the post-war law reform, which was the last major
reform since the nineteenth century, significant changes started to take place in
the 1990s.
In the 1960s, Japan experienced high economic growth largely supported by
the government industrial policies. The total amendment of the Foreign Exchange
and Foreign Trade Control Law, which took effect in 1980 (renamed the Foreign
Exchange and Foreign Trade Law in 1997) liberalised foreign exchange control
and laid the basis for the internationalisation of the economy. In the second half
of the 1980s, as the internationalisation of Japanese economy progressed, the
economy entered the ‘bubble period’ when the prices of shares and real property
tripled. However, the ‘bubble’ burst in 1990, and the economy has been slow to
recover since then.
The increasing internationalisation of the economy made it impossible for
Japan to continue its rather insulated system. Japan came under pressure to
change its long-standing system and approximate it to international standards.
A good example was competition law. As the Japanese economy enjoyed high
growth, companies gained significant positions in the world economy, and trade
friction with other countries intensified. Already in the 1970s, there were disputes
over the export of textiles, cars, and steel, which resulted in voluntary export
restraints on the part of Japan. The export of semi-conductors also became an
issue, and successive agreements were signed with the United States under the
leverage of unilateral sanctions provided by the US Trade Act.
As those sector by sector approaches turned out to be unsuccessful from the
viewpoint of the United States, the adequacy of the entire economic system in
Japan came to be targeted. The criticism was that Japan was gaining competitive
edge by resorting to unfair trade practices and cartels. The view of the United
States was that the structure of the Japanese system as a whole should be addressed
and changed if necessary.
Based upon such ideas, the Structural Impediments Initiatives Talks (here-
after SII Talks) between the United States and Japan started in 1989. The final
report of the Talks covered a wide range of topics which encompassed competi-
tion, shareholders’ rights, public procurement, deregulation, and patent proced-
ure. The Talks resulted in amendments to various laws.¹¹
The reforms that took place as a result of the SII Talks were extensive. The
Anti-Monopoly Law, which had not been particularly actively applied, was
amended and its implementation was substantially reinforced. The company law,
at that time accommodated in the Commercial Code, was amended in order to
strengthen the rights of minority shareholders. The patent procedure was stream-
lined and made speedier. The Securities and Exchange Law has been amended,
not only as a result of the SII Talks, but due to the necessity of approximating
it more closely to the international standard in areas such as the regulation of
insider trading and disclosure.
One of the issues covered by the SII Talks was deregulation. The Japanese econ-
omy was a highly regulated economy with the government keeping firm control
over the companies via its power of granting licences and permissions. It was not
at all a fair or transparent system. This was criticised by the United States and the
European Union for effectively inhibiting new entry into the market and redu-
cing competition, thus enabling Japanese companies to defend their market from
foreign competitors.¹²
It was not only foreign criticism that led the government to initiate a further
reform. In the aftermath of the collapse of the ‘bubble’ economy, companies were
struggling to survive by going into new areas of business, but were facing serious
hurdles because of excessive regulation. In many areas, entry was simply impos-
sible. Regulations, that once protected them from new entrants in the market,
were now working against them. Therefore, the move for deregulation gained
support within Japan.
In 1994, the Administrative Reform Committee was founded by the govern-
ment. There was a sub-committee on deregulation within this organisation. The
¹¹ Nichibei-Kōzō-Kyōgi Saishū-Hōkoku (Final Report of the US-Japan Structural Impediments

Initiatives Talk) (Tokyo, 1990).
¹² See, for instance, Proceedings of the Second Seminar of European Union/Japan Competition
Policy (Brussels, 1995), p. 37. A dialogue between Japan and EU on the regulatory reform has been
continuing since 1994: <http://www.mofa.go.jp/Mofaj/area/eu/index_c.html>.
next year, the first Deregulation Promotion Programme was endorsed by the
government.¹³
One of the most highly regulated areas was the financial industry. The
necessity of deregulating the financial sector had been felt for some years. The
segregation and compartmentalisation of the industry, including the segregation
of the banking and securities businesses, had once served to protect the indus-
try from competition, but later became a ‘yoke’ restricting the development of
business. A minor reform was implemented in 1993, but it was only in 1997
that a fully-fledged reform programme, which was dubbed as the ‘Financial Big
Bang’, following the Big Bang in the UK, was launched. The idea was to make
the Japanese financial market fair, transparent, and global. The measures have
continued to be implemented since then, although the timing was not the best
in light of the serious financial crisis beginning in 1998. The paternalistic and
detailed prior regulations were to be replaced by post-de facto regulation based
upon self-accountability. As a result of the reform, the hitherto highly segmented
and regulated banking system has been dismantled.
Deregulation, or regulatory reform, is not only about removing regulations.
It is also aimed at increased fairness and transparency, as well as the building of
infrastructure that ensures fairness and transparency. In 2001, the government
launched a Three Year Programme of Regulatory Reform. In the area of law, the
Programme listed the realisation of a justice system which would be more access-
ible to the general public. The review of the Civil and Commercial Codes was
also on the list. This was followed by the creation of the Office for the Promotion
of the Justice System Reform in the same year (for detail, see Chapter 3). This
Justice System Reform was a far-reaching reform, extending beyond the judi-
ciary. New procedures, such as the Labour Dispute Adjudication Procedure, were
introduced. Procedures involving intellectual property rights were streamlined
and the Intellectual Property High Court was founded in order to speed up the
process and to get more experts involved.
Since then, a significant number of Codes and Laws have been newly enacted
or substantially amended. Just to mention a few, the Civil Code was amended
several times to accommodate new categories of juridical persons. Company
law, which was previously accommodated in the Commercial Code, was made
into a new separate law—the Companies Law of 2005. The Anti-Monopoly Law
was again amended, and the holding company system, which was totally pro-
hibited by the post-War reform, was liberalised. The Code of Civil Procedure,
which was totally amended in 1996 nearly a century after its enactment, was
further amended. The Arbitration Law was newly enacted. Labour legislation has
undergone significant changes, and a new law—the Labour Contract Law—was
¹³ See J. Nakagawa et al. (eds), Kiseikanwa no Seiji-Keizaigaku (Political Economy of

Deregulation) (Tokyo, 2000). For the history of the regulatory reform <http://www.kantei.go.jp/jp/
gyokaku-suishin/>.
enacted in 2007. Intellectual property legislation has also been amended, par-
ticularly by increasing the penalties and making the remedies effective. The
Securities and Exchange Law was replaced by a new law—Financial Instruments
and Exchange Law—in 2006.
Not all of the law amendments in the 2000s can be directly associated with the
regulatory reform. The insolvency system was substantially reformed from the
late 1990s. The Anti-Monopoly Law was amended again in 2007, not necessarily
as part of the regulatory reform, but in order to align it with other countries in
combating cartels and other breaches. Japan has also ratified treaties such as the
Treaty for the Abolition of Gender Discrimination and the Treaty on the Status
of Refugees, which duly resulted in the amendment of relevant laws in recent
years.
With the sheer scale of the changes which took place, the past two decades
may be characterised as another period of major law reform, after the period of
modernisation and the post-war reform.
2
The Sources of Law
1. The Rule of Law
The rule of law is the fundamental principle underlying the present Constitution.
The previous Constitution, enacted in 1889 (hereinafter referred to as the 1889
Constitution), incorporated the principle of Rechtsstaat, which corresponded to
the concept of formelle Rechtsstaat in contrast to materielle Rechtsstaat in Germany.
State power was to be exercised within the framework of statutory laws enacted
by the Emperor with the ‘participation’ of the Imperial Diet. The Emperor was
to rule the nation in accordance with the provisions of the Constitution (Art. 4).
However, this principle was undermined by the power of the Emperor to issue
imperial edicts in order to maintain public security or to cope with natural disas-
ters (Art. 8, para. 1). It also stipulated that the Constitution did not prevent the
Emperor from exercising his power during a war or state of emergency (Art. 31).
Fundamental rights of citizens were guaranteed by the Constitution only within
the limits established by statutory laws. Constitutional review did not exist, and
judicial control over the administration was allowed only in limited cases when
specified by law.
In contrast, the present Constitution, which was enacted in 1946, is regarded
as the Supreme Law of the nation. It provides that no law, ordinance, imperial
edict, or other act of the government against the Constitution is to have legal
effect (Art. 97). Fundamental rights guaranteed by the Constitution are regarded
as inviolable even by way of legislation. In order to safeguard the supremacy of
the Constitution, the courts are now empowered to review the constitutionality
and legality of laws and ordinances as well as administrative decisions.
The present Constitution explicitly guarantees due process of law. It provides
that no person shall be deprived of life or liberty, nor shall any other criminal
penalty be imposed, except in accordance with the procedure established by law
(Art. 31). This provision was modelled on the Fourteenth Amendment of the
US Constitution, which deals primarily with procedural due process. However,
unlike its US counterpart, the Japanese provision is interpreted by the courts to
cover substantive as well as procedural due process (see Chapter 5).¹
¹ Judgment of the Supreme Court, 10 September 1975, Minshū 29-8-489; Tokushima Public
Security Regulation case.

The Sources of Law 27
Japanese law is primarily based on codified laws. Unlike the Anglo-American
system, statute law plays the primary role. However, this does not mean that case
law or other sources of law are not significant. On the contrary, case law repre-
sents a significant part of Japanese law.
Major statutes which set out the basic legal framework in a certain area are
denoted as codes. There are six major Codes: the Constitution, the Civil Code,
the Criminal Code, the Commercial Code, the Code of Criminal Procedure, and
the Code of Civil Procedure. Apart from the Constitution, the Code of Criminal
Procedure, and the Code of Civil Procedure, the other codes were enacted in
the late nineteenth or early twentieth century. Parts of the Civil Code concern-
ing family and inheritance were totally amended after the Second World War.
The Code has undergone a series of changes since the early 2000s, and now an
amendment to the part of the Code concerning the law of obligations is being
contemplated. The Commercial Code has also undergone a number of amend-
ments since its enactment. In 2005, the company law part of the Commercial
Code was separated and the Companies Law was enacted. The Civil Enforcement
Law in 1979 and the Law on Civil Interim Measures in 1989 replaced part of the
Code of Civil Procedure which, in turn, was totally amended in 1996 and took
effect in 1998.
In addition to these Codes, individual laws deal with more specific matters. For
instance, while there is no administrative code, various individual laws such as the
Cabinet Law, the Law on Administrative Litigation, the Law on Compensation
by the State, City Planning Law, and other laws comprise administrative law.²
Labour law is composed of the Labour Standards Law, the Trade Union Law,
the Law on the Adjustment of Labour Relations, and the newly enacted Labour
Contract Law. There are various individual laws such as the Banking Law, the
Financial Instruments and Exchange Law, the Anti-Monopoly Law (competition
law), the Patent Law, Copyright Law, Trademark Law, etc. They have the same
legal status as the Codes, but cover more specific fields.
The Constitution is the ‘Supreme Law of the nation’ followed by statutory laws
enacted by the Diet (Parliament); then cabinet orders; then ministerial ordinances.
As a rule, provisions of specialised laws take precedence over the provisions of a
more general law if there is a conflict. Thus, when provisions of the Civil Code
and the Commercial Code both apply, the latter takes priority. In addition to
the laws and ordinances enacted by the central government, local authorities are
empowered to enact local regulations within the limit of the law.
A database of laws and ordinances in force is maintained by the Ministry of
Internal Affairs and Communication. As of 5 September 2008, there were 1,788
laws, 1,928 cabinet orders and the pre-War imperial decrees, and 3,591 ministerial
² For an outline of Japanese administrative law in English, see K. Tsuji (ed.), Public Administration
in Japan (Tokyo, 1984). See also K. Uga, ‘Development of the Concepts of Transparency and
Accountability in Japanese Administrative Law’, in D. Foote (ed.), Law in Japan: A Turning Point
(Tokyo, 2007), p. 276ff.
ordinances. The oldest law in force is the statute which prohibits duels, enacted
in 1889.³
2. The Constitution
(1) Historical background

The present Constitution was adopted in 1946 and took effect the following year.
In 1945, shortly before the end of the Second World War, the United States, the
United Kingdom, and the Republic of China issued the Potsdam Declaration
calling for Japan’s surrender and its subsequent demilitarisation and democra-
tisation. The acceptance by the Japanese government of this declaration made a
fundamental amendment of the 1889 Constitution inevitable. After the uncon-
ditional surrender, the Japanese government formed a committee to conduct
research on possible amendments to the Constitution. The primary concern
of this committee was to preserve the basic features of the 1889 Constitution,
namely the status of the Emperor. Strengthening the protection of individual
rights was given little attention. The committee eventually prepared a draft, which
was essentially conservative, preserving the system under the 1889 Constitution
as much as possible.
The Supreme Commander of the Allied Powers (SCAP) and the US legal
advisors found this draft unsatisfactory in light of the declared aims of demili-
tarisation and democratisation. Therefore the SCAP sent detailed guidelines of
a new Constitution to the Japanese government, which developed another draft
in accordance with the SCAP’s suggestions. This draft was submitted to the
Imperial Diet pursuant to the procedure laid down in the 1889 Constitution, and
was adopted in 1946. This Constitution remains in force to the present day with-
out any amendment so far.⁴
Since the new Constitution was drafted on the initiative of the Allied Forces
during the occupation, and was against the intention of the ruling élite at that
time, some people believe that the Constitution was ‘imposed’ on Japan by the
Allied Forces. They propose to amend the present Constitution and restore some
features of the 1889 Constitution, including the removal of the renunciation of
the war clause, formal recognition of the Self Defence Force, and the recognition
of the Emperor’s status as the sovereign head of State. It is also argued that the
present Constitution overemphasises the rights of individuals, while neglecting
their duties towards the nation.⁵
³ <http://law.e-gov.go.jp/cgi-bin/idxsearch.cgi>.
⁴ H. Tanaka, ‘The Conflict Between Two Legal Traditions in Making the Constitution of Japan’,
in R. E. Ward and Y. Sakamoto (eds), Democratizing Japan: The Allied Occupation (Honolulu,
1987), pp. 107–126.
⁵ J. M. Maki, Japan’s Commission on the Constitution (Seattle, 1980), pp. 244–289.
Proposals like this surface from time to time, mostly from conservative
quarters. The ruling Liberal Democratic Party has always maintained that an
‘original Japanese Constitution’ is necessary, but so far they have not been suc-
cessful. Despite the strong influence of the Allied Forces on the drafting process
of the Constitution under unusual circumstances, its basic principles, such as the
renunciation of war, the inviolability of fundamental rights, and above all dem-
ocracy, have been accepted by the great majority of the Japanese people. It should
also be remembered that the lower house of the Imperial Diet, which discussed
the draft constitution, approved it by an overwhelming majority.⁶
In recent years, proposals to amend the Constitution have emerged on slightly
different grounds. Some people consider the present Constitution, particularly
Article 9, which provides for the renunciation of war, to be too rigid in the light
of the necessity of contributing to international peace-keeping operations. A new
law on the cooperation with the UN peace-keeping operations was enacted within
the framework of the Constitution in 1992,⁷ but some politicians are of the view
that this is insufficient and that further commitment should be possible with a
constitutional amendment. After the terrorist attack on the Word Trade Center
Building in 2001, the Special Measures Law against Terrorism was enacted, fol-
lowed by the Special Measures Law on Supporting Iraq. These laws enable the
dispatch of the Self Defence Force overseas under certain circumstances which
go beyond peace-keeping operations.⁸
Since the procedure for amending the Constitution is very rigid, it is unlikely
that there will be a change in the near future, but there is a continuing debate on
this issue. In the early 2000s, both houses set up a research committee for con-
stitutional reform and came up with some proposals. So far, there is a consensus
amongst the political parties only on the inclusion of new rights, such as the right
to privacy and the right to environment. However, two major parties agree that
Article 9, para. 2, which declares that Japan shall not maintain military power,
should be removed or changed.⁹
(2) Fundamental principles underlying the Constitution

There are three fundamental principles of the Constitution. First, sovereignty rests
with the people, and not the Emperor, as it did under the previous Constitution.
The Diet, the ‘Supreme Body of Legislation’, is composed of members who are
elected representatives of the people. The Emperor, who was the sovereign before
the end of the Second World War, now assumes the function of a ‘symbol’ of the
nation and the unity of the people. The Emperor performs a limited range of
⁶ M. Itoh, Kenpō (Constitutional Law), 3rd edn (Tokyo, 1994), p. 172.

⁷ Law No. 79 of 1992.
⁸ K. Takahashi, Rikken-shugi to Nihonkoku-Kenpō (Constitutionalism and the Constitution of
Japan) (Tokyo, 2006), pp. 56–57.
⁹ T. Nonaka et al. (eds), Kenpō (Constitutional Law), vol. 1, 4th edn (Tokyo, 2006), pp. 77–80.
acts upon the advice and approval of the Cabinet. These acts include the prom-
ulgation of amendments to the Constitution, laws, ordinances, and treaties; the
convocation of the Diet; the dissolution of the Lower House; the attestation of
the appointment of ministers and other officials; and the reception of foreign
ambassadors. He also appoints the Prime Minister and the Chief Justice. The
appointment is actually a formality. The Prime Minister and the Chief Justice
are nominated by the Diet and the Cabinet respectively. Thus, the power of the
Emperor is limited to ceremonial matters and the real decision-making power
resides elsewhere.
The second fundamental principle of the Constitution is pacifism and peace-
ful cooperation with foreign countries. The Constitution has a clause which
renounces ‘war as a sovereign right of a nation’ and the ‘threat or use of force
as a means of settling international disputes’. It is declared that ‘land, sea and
air forces as well as other war potentials are not to be maintained’ (Art. 9). It
is understood that the right of defence is not waived by this clause, but the
opinion is divided as to whether the maintenance of the Self Defence Force is
compatible with this clause or not. The government contends that the main-
tenance of a ‘minimum necessary force’ for defence is compatible with the
Constitution. In reality, the Self Defence Force has developed into a powerful
military force. As regards nuclear weapons, it is the official policy of the gov-
ernment not to develop them, not to allow them to be brought into the country,
and not to keep them.
The third fundamental principle of the present Constitution is the respect
for fundamental human rights. There is an extensive bill of rights in the
Constitution. Fundamental rights guaranteed by the Constitution are ‘conferred
upon the people as eternal and inviolable rights’ (Art. 11). In order to safeguard
these rights and freedoms, the courts are given a general power of constitutional
review. Furthermore, actions of the executive branch are generally subject to judi-
cial review insofar as they affect rights or freedoms of the people. In this context,
the Law on the Courts provides that the courts are empowered to decide ‘all
kinds of legal disputes’ (Art. 3, para. 1).
Accordingly, the law on administrative litigation of 1948 provided for special
rules to the Civil Procedure Code. This was replaced in 1962 by a new compre-
hensive Administrative Litigation Law.¹⁰ Administrative litigation is supplemented
by the administrative complaints system.¹¹ As for controls over the decision-
making process of administrative agencies, the Law on Administrative Procedure
was enacted in 1993.¹² Also, a body of case law has developed in this area. For
example, requirements of a hearing and notice in administrative procedure have
been acknowledged by the court, despite the absence of a specific statute.
¹⁰ Law No. 139, 1962. ¹¹ Law No. 160, 1962. ¹² Law No. 88, 1993.
(3) The procedure for constitutional amendment

The present Constitution has strict requirements for amending the Constitution.
Any amendment must be proposed by the Diet with the support of a two-thirds
majority of each house. A majority vote in a popular referendum is also needed
(Art. 96). A new law regarding the amendment procedure of the Constitution
was enacted in 2007 but has not taken effect yet.¹³ This Law covers the procedure
of referendum. It is in reality very difficult to meet these requirements, and since
the enactment in 1946 not a single amendment has been made.
Whether the Constitution can be amended by a fait accompli instead of by the
formal procedures laid down in the Constitution has been an issue of controversy
for some time. This is usually discussed in relation to the status of the Self Defence
Force. The military forces of Japan were dismantled after the Second World War.
The Constitution explicitly renounced both war as a sovereign right of the nation
and the threat or use of force as a means of settling international disputes. It also
declared that Japan would never maintain military forces (Art. 9).
The outbreak of the Korean War resulted in a change in US policy. The
rearmament of Japan was considered to be indispensable as a barrier against
Communism. Therefore, the then Police Auxiliary Forces were transformed into
the Self Defence Force, which developed into a powerful military force in the
following three decades. This development was not foreseen by the Constitution.
The constitutionality of the Self Defence Force has been contested in the courts
several times. Some lower court decisions have found it unconstitutional, but the
Supreme Court has refrained from ruling on this issue, allowing the question to
remain open.
Some people argue that the shift in governmental practice and the accumulation
of such facts may alter the Constitution without recourse to a formal amendment
procedure. However, without the judgment of the Supreme Court on this matter,
and in the absence of popular acceptance of the change, it is difficult to acknow-
ledge such ‘transformation of the Constitution’ (Verfassungswandel) in line with the
German theory from the pre-war period. A majority of specialists of constitutional
law reject this theory, which was originally imported from Germany.¹⁴
It is generally agreed that there is a limit to the amendment of the Constitution.
The Constitution itself declares in its preface that democracy is the ‘universal
principle of mankind’ and forms the basis of the Constitution. One provision
proclaims that the fundamental rights guaranteed by the Constitution are held
‘for all time inviolable’ (Art. 97). Whereas the German, Italian, and French
Constitutions have a provision explicitly prohibiting amendments which contra-
dict the principles underlying the Constitution, the Japanese Constitution has
¹³ Law No. 51, 2007.

¹⁴ Y. Higuchi and T. Fukase, Le constitutionalisme et ses problemes au Japan: une approche
comparative (Paris, 1984), pp. 108–122.
no such provision. Despite the absence of an explicit provision, basic principles,
such as the sovereignty of the people, pacifism, and respect for human rights are
understood to be unchangeable even with constitutional amendment.¹⁵
(4) Separation of powers

The separation of powers is a basic principle which underlies the political system
embodied in the Constitution. The Diet is the supreme legislative body; execu-
tive power lies with the Cabinet; and judicial power belongs to the courts. These
three powers are interrelated by checks and balances.
The Constitution has adopted a system in which the Cabinet as a whole is
jointly responsible to the Diet. The Diet nominates the Prime Minister from
among its members. If the nominations of the two houses differ and the difference
cannot be solved via a meeting of representatives of both houses, or if the upper
house fails to make a decision within ten days after the Lower House, the deci-
sion of the latter prevails. Thus, in practice, the leader of the majority party of the
Lower House is nominated as Prime Minister.
Under the 1889 Constitution, the Prime Minister was primus inter pares. In
contrast, the present Constitution provides that the Prime Minister is the ‘head’
of the Cabinet. The Prime Minister selects and dismisses his Cabinet minis-
ters, a majority of whom must be members of the Diet. Ministers, including the
Minister of Defence, must be civilians.
The Lower House may pass a vote of no confidence in the Prime Minister by
a simple majority. The Cabinet must resign, or alternatively the Prime Minister
may dissolve the Lower House. After a general election, the Cabinet must resign.
The Cabinet is empowered to and responsible for, inter alia, administering the
law and conducting the affairs of the State, concluding treaties, administering
foreign affairs, and preparing and presenting the budget. It also has the power to
enact Cabinet orders.
(5) Constitutional and judicial review

The supremacy of the Constitution is safeguarded by constitutional review. The
system of constitutional review was introduced to Japan from the United States
after the Second World War. In general, it has worked fairly well in post-war
Japan.
The scope of constitutional review has been an issue of debate. Some empha-
sise that there are issues whose constitutionality cannot be reviewed by the
courts because of their political nature. The doctrines of ‘political questions’
in the United States or ‘actes de gouvernement’ in France are often cited as
¹⁵ N. Ashibe, Kenpō (Constitutional Law), 4th edn, supplemented by K. Takahashi (Tokyo,

2007), pp. 378–381.
examples. It is argued that since the courts cannot bear political responsibility,
unlike the Cabinet or the Diet, they should forego reviewing sensitive political
issues.¹⁶
It is generally agreed that there is a certain limit to the constitutional review,
but opinion varies as to where it should be set. One school asserts that highly
political issues such as the constitutionality of the Self Defence Force, or the
US–Japan Security Treaty cannot be reviewed by the courts, since these political
issues should be decided by a representative body, the Diet. Others argue that
there can be cases where the intervention of the courts is necessary even on such
issues, especially when fundamental rights are concerned.
The Supreme Court has once refrained from ruling on the constitutionality of
the US–Japan Security Treaty. In that case, defendants were prosecuted for
trespassing on a US Air Force base. The defendants argued that the posting
of the US forces in Japan on the basis of the Security Treaty was against the
Constitution. The Supreme Court ruled that such a political issue was beyond the
scope of constitutional review and should be left to the decision of the Cabinet,
which has the power to conclude treaties, and the Diet, which has the power to
ratify them. On the other hand, the Court noted in passing that there may be
instances where the treaty in question was apparently unconstitutional. In such
cases, constitutional review is possible.¹⁷
As of October 2008, there have been seven instances in which the Supreme
Court has found a provision of law to be unconstitutional:
(i) A provision of the Criminal Code which made homicide of a direct ascend-
ant different from ordinary homicide, and punishable either by death or life
imprisonment as a breach of the equal treatment provision.¹⁸
(ii) A provision of the Pharmaceutical Law which controlled the location
of pharmacies as an unreasonable restriction on the right to choose one’s
occupation.¹⁹
(iii) A provision in the Forestry Law which prohibited the claim for division of
property by co-owners of a forest with a share of less than 50 per cent as a
breach of property rights.²⁰
(iv) The demarcation of the boundaries of constituencies by the Public Election
Law which resulted in a wide difference in the number of votes needed to
win a seat as a breach of the equal treatment provision.²¹
¹⁶ Cited in N. Ashibe, ‘Shihō-Sekkyoku-Shugi to Shōkyoku-Shugi (Judicial Activism and

Passivism)’, in Kenpō to Gikaisei (The Constitution and Parliamentalism) (Tokyo, 1976).
¹⁷ Judgment of the Supreme Court, 12 December 1959, Keishū 13-13-3225 (Sunagawa case).
¹⁸ Judgment of the Supreme Court, 4 April 1973, Keishū 27-3-265 (Patricide case).
¹⁹ Judgment of the Supreme Court, 30 April 1975, Minshū 29-4-572.
²⁰ Judgment of the Supreme Court, 22 April 1987, Minshū 41-3-408.
²¹ Judgment of the Supreme Court, 14 April 1976, Minshū 30-3-223 and 17 July 1985, Minshu
vol. 39, No. 5, p. 1100.
(v) A provision of the Customs Law, which allowed confiscation of property
not belonging to the offender without notice or hearing, as a breach of due
process.²²
(vi) A provision of the Postal Law which exempted the post office from liability
in an inappropriate manner as a breach of the right to claim compensation
from the government.²³
(vii) A provision of the Nationality Law which required that in order for the
child of a Japanese father and a foreign mother to apply for Japanese nation-
ality, legitimatisation by the father was not sufficient, and that the parents
needed to be married as a breach of the equal treatment provision.²⁴
It should be noted that in cases concerning the allocation of seats and demarcation
of constituency boundaries, the Supreme Court did not refrain from reviewing
constitutionality, although the issue might be categorised as political.
A judgment of the Supreme Court which finds a certain provision of a law to be
unconstitutional does not automatically make that provision void. The provision
is regarded as null and void only in relation to the specific case before the Court.
When the Supreme Court finds a provision of a law to be unconstitutional, it
publishes the judgment in the official gazette (kanpō) and sends the original to
the Cabinet and the Diet for consideration. The Cabinet and the Diet are then
expected to take appropriate action.
However, such action does not always follow. In case (i) involving the homicide
of a direct ascendant, the Cabinet and the Diet were slow to react although the
Public Prosecutor’s Office decided not to enforce this provision. Some members
of the ruling party claimed that the provision was needed to maintain respect
for parents, ostensibly one of the highest virtues in Japan. It was only in 1994
that this provision was deleted from the Criminal Code. On the other hand,
the Supreme Court seems to have changed its own stance on this matter. In a
judgment in 1974, the Supreme Court found a provision which punishes assault
resulting in the death of a direct ascendant more severely than the same offence
against others to be constitutional.²⁵
As for the electoral boundaries issue, the Supreme Court did not invalidate
the election, although it found the demarcation to be unconstitutional. The
Court held that to invalidate the election as a whole would result in the disquali-
fication of the members of the Diet and thus bring the Diet to a standstill. The
Administrative Litigation Law provides for an option of declaring an admin-
istrative decision unlawful, while maintaining its effect in the public interest
(Art. 31). Although this provision was not directly applicable since this was not
²² Judgment of the Supreme Court, 28 November 1962, Keishū 16-11-1593.

²³ Judgment of the Supreme Court, 11 September 2002, Minshū 56-7-1439.
²⁴ Judgment of the Supreme Court, 4 June 2008, Hanta, 1267–92.
²⁵ Judgment of the Supreme Court, 26 September 1974, Keishū 28-6-329.
a suit seeking the revocation of an administrative decision, the Supreme Court

based its judgment on this provision.
The Supreme Court had expected that the Diet would take the necessary
action to rectify the inequality among different constituencies within a reason-
able period. However, no action had been taken when a second case reached
the Supreme Court. Noting the failure on the part of the government to take
action, the Court nevertheless maintained that a reasonable period to rectify the
inequalities had not expired.²⁶ However, in a third case involving the election of
1983, the Supreme Court acknowledged that the legislature had failed to rectify
the inequality within a reasonable time and again found the demarcation of the
boundaries to be unconstitutional.²⁷
3. Statutory Laws
The present Constitution provides that the Diet is the supreme and the
only law-making body of the State (Art. 41). This is in contrast to the 1889
Constitution in which the legislative power belonging to the Emperor and the
Imperial Diet merely ‘assisted’ him in law-making. The Emperor was empowered
to issue imperial edicts between the sessions of the Imperial Diet, which replaced
the laws for the maintenance of public security.
The scope of issues required to be regulated by statutory law, and not by admin-
istrative rules under the present Constitution has been discussed for some time.
A theory which developed under the 1889 Constitution maintained that norms
imposing duties or limiting the rights of citizens should take the form of stat-
utes enacted by the Diet. The current Cabinet Law, which provides that Cabinet
orders may not impose duties or restrict rights unless such a power is delegated
by statute, is based upon this theory (Art. 11).²⁸ The underlying idea is that the
executive power is basically free from restrictions, but should exceptionally be
limited in cases involving the rights and freedoms of citizens. For instance, gov-
ernment subsidies do not necessarily need statutory sanction, but the levying of
taxes does.
Whether this theory is still valid and sufficient under the present Constitution
is an issue of controversy. It is now pointed out that, since the Constitution is
based upon the sovereignty of the people proclaimed in the supremacy of the
Diet instead of the Emperor, the scope of issues which should be regulated by
statute must be far broader than before. For example, financial subsidies paid to
local government are not an imposition of duties nor a restriction of rights, but
may affect the rights and interests of citizens in various ways. The pension system
²⁶ Judgment of the Supreme Court, 27 April 1983, Minshū 37-3-345.

²⁷ Judgment of the Supreme Court, 17 July 1985, Minshū 39-5-1100.
²⁸ Law No. 5, 1947.
and the unemployment benefit system are not intended to limit the rights of the
citizens, but it is nevertheless desirable to regulate them by statute. In addition,
issues previously considered to be internal matters of administration may have
to be controlled by statute, insofar as they affect the rights of citizens. Therefore,
new theories are gaining support which assert that legal norms which in one way
or another concern the relationship between the citizens and the State should
take statutory form.²⁹
The Diet is composed of the Lower House (House of Representatives) and the
Upper House (House of Councillors). The constitutional position of the former is
much stronger than the latter.
Every person over 20 years of age may vote. The Lower House is composed of
480 members, of whom 300 are elected from the constituencies. In the constitu-
ency system for the Lower House each constituency elects one representative.
The remaining 180 are elected by a proportional system. Each political party
prepares a list of candidates and arranges them in order, and seats are allot-
ted in proportion to the number of votes the party obtains. The Upper House
has 242 members of whom 146 are elected from constituencies and 96 elected
proportionally.
The Constitution does not have an explicit provision empowering the Cabinet
to submit a bill to the Diet, although there is such a provision in the Cabinet Law.
In practice, a majority of bills are submitted to the Diet by the Cabinet. From
1947 to 1983, out of 6,225 bills submitted to the Diet, 67 per cent were submitted
by the Cabinet while the rest were submitted by members of the Diet. Of the bills
actually passed by the Diet, 85 per cent were submitted by the Cabinet.
The high proportion of Cabinet-initiated bills is not unique to Japan. In the
United Kingdom, 90 per cent of bills passed by Parliament are submitted by
the Cabinet.³⁰ However, in recent years, the proportion of bills submitted by
Diet members is on the increase, reflecting the changes in the political climate.³¹
For example, in the late 1990s and early 2000s, in the process of the reform of
company law, on several occasions a parliamentary member’s bill was adopted. It
was argued that the changing circumstances did not allow the law to be amended
by the conventional process of involving the Legislative Advisory Council of the
Ministry of Justice, which in the past would deliberate on the bill for some time
before finalising it for the Cabinet.
According to the statistics of the Cabinet Legislation Bureau, of the 136
laws that were promulgated in 2007, thirty-three were submitted to the Diet by
²⁹ For different views on this matter, see H. Shiono, Gyōsei-hō (Administrative Law), Part 1,
2nd edn (Tokyo, 1994), pp. 57–67.
³⁰ T. Fukase, ‘Nihon no Rippō-katei no tokushoku (Characteristics of the Legislative Process
in Japan)’, Jurist, No. 805, 1984, p. 23. See also T. Uchida, ‘Nihon no hōrei no zentai-so ni tsuite
(Overview of Legislation in Japan)’ in K. Matsuo et al. (eds), Rippō no Heiika (Simplification of
Legislation) (Tokyo, 1997), pp. 37–38.
³¹ Uchida, ibid.
the members.³² Bills submitted to the Diet are usually drafted by the relevant
ministry.³³ In complicated issues where the advice of specialists is necessary, cases
where neutrality is required, or when the reform is of major significance, advisory
committees are consulted.
Advisory committees are usually attached to the ministries. Their task is to
investigate issues in the ministry’s portfolio and make recommendations and
proposals. The Advisory Committee on the Tax System, for example, is composed
of 58 members selected by the Ministry of Finance. They include university pro-
fessors, trade union representatives, industry representatives, and local governors
and mayors. One of the peculiarities of the Japanese system is that interested par-
ties are also made members of the committee, unlike the US system, where such
interested parties are normally summoned as witnesses. Another peculiarity is
that these committees invariably have ex-ministerial officials as members.
Although members of the advisory committees are selected from various walks
of life, three or four members who have close links with the ministry in charge
tend to steer discussions in the direction favoured by the ministry. Actually, the
draft report is often prepared by the ministry with the assistance of a working
group composed of several experts and adopted by the plenary session with only
minor revisions. Thus, the ministry’s influence in the decision-making process of
the advisory committee can be overwhelming.
Hence, these advisory committees are at times criticised for their lack of
independence, which results in a mere rubber-stamping of decisions already
finalised inside the ministries. On the other hand, it should be noted that these
committees do ensure transparency in the decision-making process of the minis-
tries, and the appropriateness of their abolition is questionable.
When an enactment or amendment of a major code, such as the Commercial
Code or the Criminal Code, is contemplated, the Legislative Advisory Council
is consulted. This body, which is attached to the Ministry of Justice, is com-
posed of prominent law professors, High Court judges, practising attorneys, the
Prosecutor General, the Head of the Secretariat of the Supreme Court, and the
Director of the Cabinet Legislation Bureau. It has subcommittees on criminal
law, civil law, commercial law, conflict of laws, etc.
A bill which has been prepared by a ministry is reviewed by the Cabinet legis-
lation bureau. The Bureau and other interested ministries are usually consulted at
an earlier stage as to the outline of the bill. The Bureau is staffed with ‘counsellors’
seconded from the court, the Public Prosecutor’s Office, or ministries.³⁴
After the review by the Cabinet Legislation Bureau, the ministry requests the
Cabinet to consider the bill at a Cabinet meeting. What is peculiar is that the bill
³² <http://www.clb.go.jp/contents/promulgation/law_019.html>.
³³ For the legislative process, see M. Nakamura and T. Tsunemoto, ‘The Legislative Process:
Outline and Actors’, in Y.Higuchi (ed.), Five Decades of Constitutionalism in Japanese Society
(Tokyo, 2001), pp. 197–219.
³⁴ Cabinet Legislation Bureau, ‘Legislative Review’, in Tsuji (ed.), supra, pp. 139–152.
is simultaneously sent to the ruling party, where it is normally examined by the
Political Affairs Committee of the ruling Liberal Democratic Party. Key mem-
bers of the ruling party as well as major opposition parties are informed of the
contents of the bill and a consensus is sought. A bill approved by the Political
Affairs Committee is then sent to the General Affairs Commission. For the most
part, the approval of this latter committee is a prerequisite of any cabinet discus-
sion on the bill. Thus, in the majority of cases, the bill has already been discussed
and a compromise reached before it is submitted to the Diet.
A bill can be submitted to either house but it is usually submitted to the Lower
House and then referred to one of the standing committees. Only when the bill
is of major significance is it first explained to the general assembly of the House.
Since the sessions of the general assembly are not held very often, and because the
time allocated for discussion is limited, standing committees play a major role in
the Diet. At present, there are eighteen standing committees in the Lower House
and sixteen in the Upper House. Both houses have the constitutional power
to investigate legislation (Art. 62), and this power is primarily exercised by the
standing committees.
The committee system was introduced from the United States after the Second
World War, but present practice is somewhat different from the US system. While
discussions in general assembly are open to the public, standing committee ses-
sions are usually closed. Only reporters and persons with special permission from
the chairman are allowed to observe. After the debate and voting, the bill is sent
to the general assembly, where it is discussed and voted upon. Discussion before
the assembly is limited not only in time, but in effect. The consent of a minimum
of 20 members is required in the Upper House in order to place a motion of
amendment.
When one of the houses passes a bill, it is then sent to the other house and
discussed in the same manner. If the Lower House passes the bill but the Upper
House does not agree, the former may overrule the latter by a two-thirds major-
ity. If the Upper House does not approve a bill which has been referred by the
Lower House within 60 days, the latter may regard the bill as having been vetoed
by the former.
A bill which the Diet has passed is signed by the relevant minister, together
with the Prime Minister. The Emperor, on the advice and approval of the Cabinet,
promulgates the law in the official gazette. The law usually designates the date on
which it is to take effect, but if not it comes into force 20 days after promulgation.
Laws which are applicable only to a specific and limited region require a special
legislative procedure. After the Diet has passed such a bill, it must be approved by
a majority vote at a referendum in the locality in which it is expected to be applied.
This system was inspired by the laws of several states in the United States. These
kinds of laws were occasionally enacted in the first decade after the promulgation
of the Constitution, but since then this provision of the Constitution has been
interpreted narrowly, and there has been no recent case of such a referendum.
4. Delegated Legislation
Legislative power is often delegated to cabinet orders, ministerial ordinances,

and other administrative rules. The Constitution empowers the Cabinet to issue
orders, but only to ‘implement the provisions of the Constitution and the laws’
(Art. 73, para. 6). Since the same provision states that cabinet orders may not
include criminal sanctions unless so delegated by the law, it is generally under-
stood that the Constitution presupposes delegated legislation.
In reality, it is impossible to regulate everything by primary legislation in a
modern society. It is even preferable to leave, for example, matters which require
technical expertise, matters which need to be adapted promptly to changing
circumstances, or matters which presuppose political neutrality for delegated
legislation.
On the other hand, the delegation of legislative power is not unlimited. It is
allowed only insofar as it does not undermine the supremacy of the Diet in law-
making. The delegation of legislative power must be specific and concrete; giving
carte blanche to the executive branch is not permitted. The Supreme Court has
acknowledged this in principle, but in practice, it tends to allow a fairly broad
delegation of power.³⁵
There are several kinds of delegated legislation, classified in accordance with
the body which enacts them, including cabinet orders (seirei), ministerial ordi-
nances, and ordinances of the Prime Minister’s Office (shōrei and naikakufu-rei).
The Cabinet Law provides that cabinet orders may not contain provisions which
impose duties or restrict rights unless so delegated by statute (Art. 11). Furthermore,
the Law on the Organisation of State Administration provides that ministers may
enact ministerial ordinances in order to implement laws and cabinet orders, and
also where it is specifically delegated by statute or cabinet order (Art. 12, para. 1).
Matters left to delegated legislation are fairly broad. For example, in the
field of pollution controls, the emission standards are set by an order of the
Cabinet Office.³⁶ The Foreign Exchange and Foreign Trade Law provides that
a person who intends to export goods may be required to obtain a licence
from the Minister of Trade, Economy and Industry as provided by the cabinet
order. Goods and technology subject to export licence are listed in ministerial
ordinances.³⁷ Also in the Financial Instruments and Exchange Law, various
matters are left to ordinances.
One of the most controversial issues in this respect was the constitutionality
of Art. 102 of the Law on Government Employees.³⁸ This prohibits government
employees from being involved in political activities, under threat of up to three
³⁵ Judgment of the Supreme Court, 1 May 1958, Keishū 12-7-1272.

³⁶ Law on Water Pollution Controls, Law No. 138, 1970, Art. 3, para. 1.
³⁷ Law No. 228, 1949, Art. 48, para. 1.
³⁸ Law No. 120, 1947.
years’ imprisonment. The definition of ‘political activities’ is not given in the Law,
but is left to rules enacted by the Government Personnel Authority, one of the
administrative commissions. The constitutionality of this provision is question-
able because it involves fundamental rights of government employees, but never-
theless gives broad discretion to delegated legislation.
The issue was contested in court when a post office employee was prosecuted
under this provision for taking part in industrial action. The district court and
the High Court acquitted the defendant on the grounds that imposing crim-
inal sanctions for political activity was an unreasonable and excessive restriction
on the actions of government employees. The High Court explicitly referred to
the ‘less restrictive alternative’ test adopted by the US Supreme Court to reach
this conclusion. However, the Supreme Court quashed the judgment of the High
Court and found the provision constitutional.³⁹
The majority opinion held that the delegation of legislative power was suffi-
ciently specific, and since it was possible to derive the purpose of the delegation
and the scope and standards for its implementation from the given provision of
the Law, the delegation of power was constitutional. There were four dissent-
ing opinions which maintained that the Diet should first discuss the necessity of
restricting political activities in detail, and only then decide the scope of restric-
tions. Most specialists in constitutional law view the broad and unlimited
delegation of legislative power effected by this Law as unconstitutional.⁴⁰
The Supreme Court has not found delegation of legislative power to the
Cabinet to be unconstitutional in most cases, except in a case where a cabinet
order was found to breach the Law on Agricultural Land by unduly restricting
the owner’s chance of selling the land.⁴¹
5. International Treaties
The Constitution provides that international treaties as well as the established

laws of nations should be faithfully observed (Art. 98, para. 2). It is the Cabinet
which is empowered to conclude international treaties. A plenipotentiary signs a
treaty and the Cabinet approves it with the attestation of the Emperor, but this
is merely a formality. The approval of the Diet is required, normally in advance,
but ex post facto approval is justified in cases of urgency or other extraordinary
situations. When the opinions of the Houses differ, and the difference cannot be
solved by a coordinating committee meeting, or when the Upper House does not
take any action within thirty days after receiving the draft treaty, the decision of
the Lower House is regarded as final (Arts 60, 61).
³⁹ Judgment of the Supreme Court, 6 November 1974, Keishū 28-9-393 (Sarufutsu case).
⁴⁰ Itoh, supra, p. 672.
⁴¹ Judgment of the Supreme Court, 20 January 1971, Minshū 25-1-1.
In an official opinion in 1974, the government listed the following categories

as being within the scope of treaties required to be ratified by the Diet: (i) treaties
concerning matters which fall within the competence of the Diet, such as treat-
ies involving territorial issues, tax, commerce, and navigation; (ii) treaties which
require special financial arrangements or obligations (such as a treaty to estab-
lish an international organisation for which financial contribution is needed, or
a treaty of compensation for losses caused by war); and (iii) treaties of political
significance which establish fundamental links with other countries.⁴²
The majority of scholarly opinion maintains that the Diet may not alter a treaty
when approving it. The conclusion of treaties is a power exclusive to the Cabinet,
and the Diet may only approve or reject the treaty in toto.
In order to implement an international treaty, it is necessary to incorporate it
into the national legal system. In some countries, treaties must be transformed
into national law by an enabling act of the legislature. In other countries, treat-
ies are accepted without being so transformed. In principle, Japan has taken the
second approach. Treaties are promulgated in the same way as statutory laws in
the official gazette and do not have to be converted into national laws.
Since treaties can be incorporated into the national legal system without trans-
formation, the relationship between domestic law and international treaties must
be determined. The Constitution provides that international treaties to which
Japan is a party should be observed faithfully, and since the ratification by the
Diet is needed, it is generally agreed that international treaties are superior to
statutory laws.
There are, however, diverse opinions as to the relationship between the
Constitution and international treaties. The prevailing view is that the
Constitution has priority over international treaties. The Cabinet’s power to con-
clude treaties and the Diet’s power to approve them derive from the Constitution.
Therefore, it is logically impossible to justify the superiority of a treaty which
is counter to the Constitution. This view is also supported by the fact that the
procedure for amending the Constitution is much more difficult than that for
concluding treaties.
A problem may arise when the government concludes a treaty which is later
found to be unconstitutional by the Supreme Court. From the viewpoint of inter-
national law, it is still valid. The government, however, must negotiate with the
other parties to withdraw from or revoke the treaty. It should be added that Japan
is a signatory to the Vienna Convention on the Law of Treaties. The Convention
provides that a nation may not justify the non-fulfilment of obligations arising
from treaties on the ground of its national law.
The Constitution provides that the ‘established law of nations’ is to be faithfully
observed (Art. 98, para. 2), which includes international custom. This provision
was interpreted in a case where the extradition of a person to his home country
⁴² Opinion of the Government, 20 February 1974.

was contested. The Supreme Court ruled that the non-extradition of political
offenders was yet to become an established international custom.⁴³
6. Judge-Made Law
The Japanese legal system is primarily based on statutory laws. However, this does
not mean that case law is insignificant. On the contrary, judgments, especially those
of the Supreme Court, are respected and followed as one of the primary sources of
law. New rules often emerge from case law and therefore the study of court judg-
ments is an essential part of discussing legal problems. Judgments and decisions of
the Supreme Court as well as the lower courts are studied and commented on by
scholars and practising lawyers. These comments are regularly published in legal
periodicals, and often influence the courts in their decision-making.
Court judgments are published in court reports. Supreme Court judgments
are selected by its Precedents Committee and published by the Supreme Court.
There are also collections of selected appellate and lower court judgments.
The courts have played a crucial role in the development of modern Japanese
law. In some areas—such as human rights, real security rights, land and hous-
ing, tort, and labour law—statutory law has been extensively and significantly
supplemented by precedent.
Since the codes were somewhat general in character, the gaps had to be closed
by court judgments. This is, for example, illustrated in tort law. The Civil Code
has a general provision on tort liability (Art. 709) which was intentionally made
general so that it could cover various kinds of situations emerging in the future.
The concepts of negligence, causality, unlawfulness, etc. were not defined by the
Code, but have developed from an accumulation of judgments, and consequently
a substantial body of case law has emerged in this field.
Similar developments have taken place in the field of administrative law.
The Administrative Litigation Law, enacted in 1962, provided for an ‘object-
ing action’, aimed at having an administrative decision revoked or altered. The
Law provided for four types of such litigation, but left room for other types of
litigation to be developed through academic research and court judgments. For
instance, the availability of litigation mandating the administration to take a
certain measure (Verpflichtungsklage) is discussed in this respect.
The court has also been instrumental in mitigating the effect of provisions of
a law which, when literally and strictly applied, may result in unfairness. Thus,
in labour law, the courts have developed a rule that the exercise of the employer’s
right to dismiss an employee may be null and void if the dismissal lacks reason-
able grounds and is socially unacceptable. This ‘doctrine of unfair dismissal’ and
some other rules that developed from case law were incorporated in the Labour
⁴³ Judgment of the Supreme Court, 26 January 1976, Shōmu-geppō 22-2-578.

Contract Law. Similar developments have taken place to protect a lessee’s rights
in land and housing. This is made possible by the courts resorting to general
clauses such as ‘public order and good morals’, ‘good faith and fair dealing’, and
‘abuse of rights’ in the Civil Code (see Chapter 6).
Sometimes judges deviate from the provisions of law in order to attain equit-
able results. The development of atypical real security rights serves as an example.
Despite the provisions of the Civil Code, which prohibit the creation of real rights
other than by law, and require the transfer of possession in order to effect security
over movables, various kinds of atypical real securities have been developed in
practice and upheld by the court (see Chapter 8). Also, in the field of consumer
loans where creditors have charged extremely high interest, the Supreme Court
has made efforts to control such high rates and reimburse excess interest to the
debtor. The Law on the Restriction of Interest explicitly provided that excess
interest voluntarily paid by the debtor could not be reimbursed. However, the
Supreme Court ruled that although excess interest was not reimbursable, it could
be counted as a repayment of the principal. In another case the Supreme Court
ruled that when the excess amount paid reached the amount of the principal,
there was no possibility of interest being generated, and therefore the excess pay-
ment should be returned to the debtor.⁴⁴ In 2006, the Supreme Court ruled in
favour of the borrower in several cases, overruling the judgments of the lower
court.⁴⁵
There are different views amongst specialists as to the status of court judg-
ments as a source of law. There is no explicit provision in the law which directly
provides for the status of judicial precedent in Japan. The Constitution provides
that judges should fulfil their duties independently, and are bound only by law
(Art. 76, para. 3). Some people feel that since this provision does not refer to
court judgments, they should not be regarded as a source of law. However, the
prevailing view is that court judgments are sources of law, but in a supplemen-
tary way. This is because precedents are not binding on the courts in the same
way as statutory laws are binding on them. The doctrine of stare decisis has no
explicit basis in Japanese law. Therefore the courts are theoretically free to render
judgments against established precedent.
Lower courts occasionally defy the precedents of the Supreme Court. For
example, the Supreme Court in 1967 ruled that the right to compensation for
non-pecuniary loss could be inherited without an express intention on the part of
the deceased to claim compensation.⁴⁶ However, some lower courts, in accord-
ance with the prevailing view of academics, still maintain that such a right cannot
⁴⁴ T. Hironaka, ‘Wagastuma minpō-gaku to han-seitei-hō-teki kaishaku (Civil Law Theories of

Professor Wagatsuma and Anti-statutory Interpretation of the Civil Code)’, Part 3, Jurist No. 1096,
1996, pp. 74–83. A. M. Pardieck, ‘Japan and Moneylenders—Activist Courts and Substantive
Justice’, Pacific Rim Law and Policy Journal, vol. 17, No. 3, p. 532.
⁴⁵ Judgment of the Supreme Court, 13 January 2005, Minshū 60-1-1.
⁴⁶ Judgment of the Supreme Court, 1 November 1967, Minshū 21-9-2249.
be inherited; instead, those heirs who had been dependent on the deceased should
be allowed to claim damages in their own right.
Sometimes, the accumulation of lower court judgments against the Supreme
Court’s precedent has eventually led to a change of view by the latter. Generally,
lower courts are closer to everyday life and more sensitive to changes in soci-
ety than higher courts. They are thus likely to have good reason to deviate from
inappropriate precedents of the Supreme Court.
On the other hand, the Code of Criminal Procedure provides that deviation
from precedents of the Supreme Court is a ground for appeal (Art. 405, para. 2).
In civil procedure, certiorari is available in such cases (Art. 318, para. 1). Thus,
lower courts must take the risk that their judgments will be quashed or reversed
by the Supreme Court. Because of this possibility, the lower courts usually fol-
low the precedents of the Supreme Court. This is often denoted as the de facto
binding force of precedent.⁴⁷
Furthermore, Japanese judges are generally ‘career judges’. Judges are appointed
for a fi xed term of 10 years, and renewal of the term is usual, although not guar-
anteed. The Supreme Court wields great power in promoting and transferring
lower court judges Lower court judges may therefore be disinclined to rule
against precedents of the Supreme Court. Some argue that despite the absence of
the doctrine of stare decisis, lower courts are bound by precedents even more than
in the countries where this doctrine exists, because of this career system.
It should be noted that the scope of the de facto binding force of precedent is
much broader in Japan. While the binding effect of precedent in Anglo-American
jurisdictions is limited to the ratio decidendi, in Japan the demarcation between
the ratio decidendi and obiter dicta is not necessarily strict. General explanations
or guidelines given in Supreme Court judgments are often treated in practice as
precedents and are cited in lower court judgments.⁴⁸
The binding force of judicial precedent, although it is not de lege, is explained
mainly by the hierarchical system of the courts (i.e. judgments of the higher courts
are superior to those of the lower courts), rather than by the need to treat similar
cases in an equal fashion. A possible corollary of this view is that the Supreme
Court itself is not necessarily bound by its precedents. The issue was raised when
the Supreme Court failed to follow its own previous judgment concerning the
constitutionality of the restriction of political activities imposed on government
employees. The Supreme Court had ruled that the imposition of criminal sanc-
tions on government employees for political activities was an excessive restriction
of their basic rights, and therefore unconstitutional. However, eight years later
the Supreme Court explicitly changed its position and found the imposition of
⁴⁷ T. Nakano (ed.), Hanrei no Yomikata (How to read Cases) (Tokyo, 1986), pp. 14–16.
⁴⁸ Ibid. pp. 142–147. See also Y. Higuchi, ‘Hanrei no kōsoku-ryoku kō (On the Binding Force
of Precedent)’, in Higuchi and M. Shimizu (eds), Nihon-koku Kenpō no Riron (Theories of the
Constitution of Japan) (Tokyo, 1987), p. 684.
criminal penalties in such cases to be constitutional.⁴⁹ There had been a change

of justices since the previous judgment.
This was not the first time the Supreme Court had declined to follow its own
precedents, but this case was peculiar in that the decision was contrary to the
prevailing view of lawyers. Furthermore, in that case a change of precedent was
not needed to reach the same substantive conclusion. Nevertheless, a majority of
eight justices rejected the approach taken in the previous judgment. Five dissent-
ing justices stressed that in order to alter the interpretation of the Constitution
and to change a precedent, the court should cautiously examine the necessity and
reasonableness of the change, and argued that there was no need to change the
precedent in this case.
7. Circulars (Tsūtatsu)
Circulars (tsūtatsu) of ministries and other administrative agencies are cat-

egorised as administrative rules. Circulars are issued by ministers, directors of
bureaux and departments, and other officials. They are addressed to the lower
echelons of the administration and local government, and give guidelines
for the interpretation of the law and the exercise of discretion on their part.
Administrative rules are not regarded as a source of law because they do not
address the public directly and are basically internal rules, but in practice they
may have a significant effect.
In every field of public administration—for instance taxation, finance, and
urban development and planning—circulars play a crucial role. Although the
law is fairly general, the discretion of lower echelons of the administration and
local government is narrowly limited by circulars. While statute laws tend
to be rather general (as, to a lesser extent, do cabinet orders and ministerial
ordinances) circulars address details. Not uncommonly, a system or procedure,
with no explicit legal basis, develops through circulars and becomes an estab-
lished practice.
Since circulars are internal rules or guidelines, breaches of a circular by
officials cannot be contested in court and generally do not serve as a ground
for citizens to claim damages. Even so, there are cases where circulars affect
the rights and duties of citizens directly. Recently, in the field of finance and
securities, circulars have been largely replaced by cabinet orders and ministerial
ordinances, as well as self-regulatory measures, to enhance transparency in the
administrative system.
⁴⁹ Judgment of the Supreme Court, 25 April 1973, Keishū 27-4-547: Zen-nōrin keishokuhō case.
See also Judgment of the Supreme Court, 26 October 1966, Keishū 23-5-305: Zentei-chūyū case.
8. Administrative Guidance
Administrative guidance from government agencies and local authorities plays a
significant role in Japan, although it is not a source of law. Administrative guid-
ance is an informal instrument of administrative agencies, usually addressed to
private entities (corporations and individuals) and designed to influence and steer
their behaviour in order to achieve a specific policy goal.⁵⁰
The Law on Administrative Procedure⁵¹ defines administrative guidance as
follows.
Recommendation, advice and other acts effected by an administrative agency within the
scope of its competence addressed to a specific person requiring this person to take a
certain action or to refrain from such an action in order to achieve a specific administra-
tive goal and which does not fall within the category of administrative decision. (Art. 2,
subpara. 6)
Administrative guidance takes various forms, such as a recommendation,
encouragement, suggestions, or advice. It may appear in written form, but is
often given orally. Sometimes officials merely drop a hint, which is taken up by
the addressee. An example is the ‘Price-Keeping Operation’ by the Ministry of
Finance at the time of the fall in share prices in the Tokyo Stock Exchange in
the early 1990s. Institutional investors were asked questions by the Ministry
of Finance which, by implication, meant that the Ministry did not want those
investors to sell shares at that time. There was no written instruction, and it
was not certain that administrative guidance had taken place. This kind of tacit
communication is only possible when there is a close relationship between the
ministry and addressee.⁵²
Administrative guidance may also help to mitigate and reconcile conflicting
interests, for example in planning law. While statutes provide for various restric-
tions on development in urban areas, these are not always sufficient, and so local
government often establishes its own stricter guidelines. These guidelines are not
formally binding, but those who apply for building permission are expected to
comply with them.
Since administrative guidance is not binding, it is generally understood that
administrative guidance does not require a specific legal basis. As can be seen
from the above-cited examples, ministries often effect administrative guidance
based upon their respective general supervisory power over a particular industry.
⁵⁰ H. Shiono, ‘Administrative Guidance’, in K. Tsuji (ed.), supra, p. 204.

⁵¹ Law No. 88, 1993.
⁵² B. W. Semkow, ‘Japanese Banking Law: Current Deregulation and Liberalization of
Domestic and External Financial Transactions’, Law and Policy in International Business, vol. 17,
1985, pp. 90–91. See also C. Milhaupt and G. Miller, ‘Cooperation. Conflict and Convergence in
Japanese Finance; Evidence from the “Jūsen” Problem’, Law and Policy in International Business,
1997, No. 1, p. 1ff.
In some cases, restrictions not embodied in law are imposed by way of

administrative guidance. An example is the Law on Large Retail Stores. This
Law merely required that in order to open a large retail store, the then Minister
of International Trade and Industry (delegated to local governors) should be
notified. However, by way of administrative guidance from the Ministry, a list
of areas where no large retail stores were allowed to be built was prepared and
enforced. This practice was totally abolished after the Structural Impediments
Initiatives Talks with the United States.
Although administrative guidance is not binding in nature, it is often accom-
panied by the power of administrative agencies to grant licences, give permissions,
or provide other benefits. For example, in 1964 the Ministry of International
Trade and Industry encouraged steel companies to decrease production of crude
steel by way of administrative guidance. One steel company refused to follow
this suggestion, since the plan prepared by the Ministry seemed unfairly dis-
advantageous to them. In response, the Ministry decreased the allocation of oil
to the company; the Ministry and the company later reached a compromise. In
another case, a company planned to import oil cheaply. This did not coincide
with the policy of the Ministry of International Trade and Industry at the time.
The Ministry tried to discourage the company, but to no avail. It then sought the
cooperation of the Ministry of Finance, which in turn put pressure on the bank
which was to finance the transaction. Eventually the company had to abandon its
plan.⁵³ In this respect, the Law on Administrative Procedure which was enacted
in 1993 provides that the administrative agency that has the power to grant a
licence or permission should not compel the counter-party to follow administra-
tive guidance by unnecessarily indicating that it is entitled to exercise such power
(Art. 34).
The Supreme Court has ruled on the voluntary nature of administrative guid-
ance on several occasions. One such ruling concerned the Anti-Monopoly Law
(see Chapter 14). In a recent case the Supreme Court ruled on administrative
guidance involving planning permission. In this case, the Tokyo Metropolitan
Government withheld building permission for a block of flats until a dispute
between the developer and neighbouring residents had been resolved. Although
the Metropolitan Government attempted to arbitrate in the dispute by way of
administrative guidance, the developer filed an official complaint. When permis-
sion was still withheld, the developer brought the case to court seeking damages
for loss caused by the delay from the Metropolitan Government.
The district court found the withholding of permission to be legal. However,
the High Court overruled this judgment and the Supreme Court agreed. The
Supreme Court acknowledged that it is lawful to delay the granting of building
permission while an administrative agency tries to control development by way of
⁵³ F. Upham, ‘Privatized Regulation: Japanese Regulatory System in Comparative and

International Perspectives’, Fordham International Law Journal, 1997.
administrative guidance. However, once the recipient of the guidance refuses to
accept it, it is no longer legal to withhold permission.⁵⁴ This rule has been accom-
modated in the Law on Administrative Procedure (Art. 33).
Administrative guidance has an advantage in that it enables administrative
agencies to implement measures in a flexible way by seeking the consent and
cooperation of the recipients. It is often justified because it is well suited to react-
ing promptly to changing circumstances, while legislative measures require
time. Circumstances which necessitate action on the part of an administration
may not persist for long enough to deserve legislative measures. Also, by utilis-
ing administrative guidance before taking formal action, it is possible to avoid
unnecessary conflict and reach a flexible and agreeable solution. The prior con-
sultation system for the notification of mergers to the Fair Trade Commission is
an example.
On the other hand, administrative guidance has its drawbacks. It often
lacks procedural fairness and transparency. Since it is informal and often with-
out statutory basis, there are problems concerning accountability. Unofficial
‘sanctions’ for non-compliance may infringe the rights and freedom of individuals
and companies. Since it is not formally binding, it is difficult for individuals and
companies to seek redress against wrongful administrative guidance. It is pos-
sible to seek damages if the administrative guidance is unlawful, but since it is
not a formal administrative act, its validity cannot be contested in administrative
litigation.
The shortcomings of administrative guidance have long been recognised in
Japan. The Law on Administrative Procedure of 1993 was a major step forward
towards fairness and transparency.⁵⁵ The Law explicitly provides for the volun-
tary nature of administrative guidance and adds that disadvantage should not
be inflicted even if the addressee fails to comply with the guidance (Art. 32).
Those who effect administrative guidance are obliged to disclose the identity of
the person responsible for the guidance to its addressee (Art. 35, para. 1). Where
administrative guidance is given orally, the addressee is, in principle, entitled to
ask for guidance in writing (Art. 35, para. 2).
The securities scandals in 1991 (see Chapter 13) triggered a wave of criticism
against administrative guidance. The lack of transparency created by excessive
use of administrative guidance by the Ministry of Finance in regulating the
securities business was considered to have contributed to the occurrence of such
scandals. As a result, the Ministry made efforts to codify administrative guidance
in cabinet orders and ministerial ordinances. There is also mounting criticism
from foreign countries on the extensive use of administrative guidance, since
such informal and untransparent means often work against foreign companies
unfamiliar with the modus operandi of the Japanese market.
⁵⁴ Judgment of the Supreme Court, 16 July 1980, Minshū 39-5-989.

⁵⁵ Law No. 88, 1993.
Administrative guidance again became an issue when the failure of the

Ministry of Finance in regulating and supervising the financial sector became
evident in 1997. Some financial institutions failed to disclose accumulating losses
and other problems, allegedly with the tacit endorsement of the Ministry, which
resulted in the collapse of several banks and securities companies. In the Daiwa
bank case, the Bank failed to report a substantial loss caused by a rogue trader in
the US to the US authorities, allegedly after consulting the Ministry. The lack of
transparency and accountability of the system was criticised.
As part of the Big Bang (financial deregulation) that began in 1996, the
method of supervising the financial sector has undergone a major change.
Instead of detailed prior intervention from the authority by way of administrative
guidance, the emphasis has shifted to post ante regulation. The scope of adminis-
trative guidance has been narrowed substantially within the financial sector (see
Chapter 13).
In general, with the progress of the regulatory reform in the 2000s, the scope of
regulatory power of the ministries has been substantially reduced, and as a result,
the role of administrative guidance in public administration has diminished.
9. Local Regulations
Under the Constitution of 1889, political power was highly centralised and there
was little room for the autonomy of local government. Governors, mayors, and
other key officials of local authorities were all appointed by the central govern-
ment. The Ministry of Internal Affairs exercised enormous power over local
authorities, whose task was to implement the policy set by central government.
The police was made part of this Ministry.
After the Second World War, the democratisation of the local government sys-
tem was part of the reforms. The Ministry of Internal Affairs was abolished and
replaced by the Agency of Local Administration.⁵⁶ The police force was separated
from this agency, unlike its predecessor. The current Constitution has a chapter
on local self-administration and guarantees the autonomy of local government.
Shortly after the Constitution was enacted, the Law on Local Self-Administration
was enacted, providing for the organisation and powers of local governments.⁵⁷
This reform was aimed at the democratisation and decentralisation of local
administration, following the models of the United States, but went only halfway,
partly due to strong opposition from the Japanese government. While significant
reforms, such as the introduction of public election for governors and mayors
were made, some features of the pre-war system of local administration remain
⁵⁶ As a result of the administrative reform in the late 1990s, several ministries merged and
became the Ministry of Internal Affairs and Communication.
⁵⁷ Law No. 67, 1947.
intact, or were later restored. The central government still exercises significant
control, particularly through financial measures.
As part of the post-war reforms, local government was given the right to enact
local regulations. The Constitution provides that local authorities, including
prefectures, cities, towns, and villages, may enact regulations within the scope
of the law (Art. 94). The Law on Local Self-Administration provides that local
authorities may enact regulations on matters listed in the Law within the frame-
work of laws and ordinances (Art. 14, para. 1). These issues range from the main-
tenance of public order and public health, protection of the environment, and
consumer protection to the promotion of industry and commerce. It is also
possible to provide for criminal sanctions in local regulations: up to two years’
imprisonment or a fine of 1,000,000 yen (ibid., para. 3).
The enactment of local regulations falls within the competence of the assembly
of the local government, composed of members elected by the inhabitants. Local
regulations are published by the local authorities.
The relationship between the general law and local regulations is a much
debated topic. The issue was first raised when a person was charged with a breach
of local regulation which punished prostitution. Prostitution is not in itself a
criminal offence in Japan. The defendant argued that the local regulation was
contrary to the due process of law. However, the Supreme Court ruled that the
wordings of the Law on Local Self-Administration enabling local regulations to
provide for criminal sanctions were sufficiently clear and specific to justify such a
delegation of power. The judgment also took into account that local regulations
are enacted by representative bodies.⁵⁸
A similar issue came before the Supreme Court when a person was prosecuted
for violating a local regulation punishing indecent behaviour towards minors.
Among other issues, the constitutionality of providing for such ‘offences’ by local
regulation was at issue. The Supreme Court cited the judgment discussed above
and found this to be constitutional.⁵⁹
This problem came into focus again when pollution became a serious problem
in the 1960s. Since the national government was slow to react to the increasingly
serious problem of pollution, some local authorities, especially those in highly
industrialised areas, enacted local regulations to cope with the problem, introdu-
cing stricter standards than those in the national anti-pollution law by their local
regulations. Sometimes local regulations controlled a scope of activity wider than
that of national laws. Whether regulations with higher standards and broader
applicability were legal or not was a matter of debate.
Previously, the prevailing view had been that local regulations could not cover
issues which had already been regulated by national legislation. A corollary to this
was that local regulations could not strengthen or broaden control at the national
⁵⁸ Judgment of the Supreme Court, 15 October 1958, Keishū 12-14-3305.

⁵⁹ Judgment of the Supreme Court, 23 October 1985, Keishū 39-6-413.
level. However, the development of local regulations on pollution control led to

reconsideration of this theory. It is now asserted that when the law has established
norms which are meant to be enforced throughout the country in a uniform fash-
ion, i.e. when the law has established a maximum standard, local regulations may
not regulate the same activity in a stricter or a broader way. On the other hand,
when the law can be interpreted as having a minimum standard, local authorities
may enact stricter regulations by taking into account local peculiarities.⁶⁰ In this
sense, the above-mentioned judgments of the Supreme Court concerning prosti-
tution and indecent behaviour are questionable, since in these cases the fact that
the Criminal Code is silent on this matter seems to indicate the Diet’s intention
to leave these acts outside the scope of criminal law.
The Supreme Court acknowledged this view in its obiter dictum in favour of a
local regulation. A case arose where the issue was the constitutionality of a public
security regulation, which required participants in public demonstrations to
observe traffic rules and provided for criminal sanctions for violations. Because
this regulation conflicted with the Law on Road Traffic, the district court acquit-
ted the defendant on the ground that the regulation overlapped with national law.
The High Court upheld this judgment. However, the Supreme Court reversed
the judgment, ruling that this was a case where the Diet had intended to set
minimum standards, thus allowing further restrictions by local authorities.⁶¹
10. Customary Law
As a general principle, the Law on the General Rules Regarding the Application
of Laws provides that custom that is not contrary to public order nor good morals
has an effect equivalent to law, provided that it is endorsed by a provision of law,
or when there is no law on the issue (Art. 3).⁶² The Civil Code contains a provi-
sion which allows the application of custom when the parties so intended (Art.
92). The Commercial Code provides that where there is no applicable provision
in the Code, commercial customary law should be applied, and only if there is no
such customary law is the Civil Code to be applied (Art. 1).
Since the earlier codes were based on foreign models, there was inevitably a
gap between the law and social reality. Customary law, together with judgments,
played an important role in filling this gap and adapting the codes to changing
social conditions. Sometimes, commercial custom which was seemingly con-
trary to the mandatory provisions of law has developed and eventually been
upheld by the courts. Atypical real security rights are an example. Furthermore,
⁶⁰ H. Shiono, supra, vol. 3 (Tokyo, 1995), pp. 134–141.

⁶¹ Judgment of the Supreme Court, 10 September 1975, Keishū 29-8-489: Tokushima Public
Security Regulation case.
⁶² Law No. 70, 2006.
in commercial law, the practice of issuing blank bills of exchange has been
developed. This is contrary to law, but has been accepted by the courts.⁶³
11. Scholarly Opinion
Scholarly opinions are not regarded as a source of law and are rarely cited
explicitly in judgments. However, this does not mean that scholarly opinions
have no influence on judgments in court. Since the major codes were of for-
eign origin, in the early years, the courts had no expertise in interpreting the
codes. Therefore, the assistance of scholars who were familiar with foreign law
was indispensable. This process was repeated after the Second World War, when
US law served as a model for various laws, such as the Labour Standard Law, the
Code of Criminal Procedure, the Anti-Monopoly Law, and most importantly,
the Constitution.
The courts often accept the views of law professors. For instance, it had been
established in tort law that when determining contributory negligence on the
part of minors, only the act of the victim should be taken into account, even when
parents have failed properly to supervise minors. The precedents of the Supreme
Court were criticised by academics for years, and finally the Supreme Court ruled
that negligence of other persons associated with the victim should also be taken
into account.⁶⁴
Judges study scholarly opinions extensively before making a decision. At the
Supreme Court, law clerks qualified as judges or assistant judges consult scholarly
opinions when they assist the justices writing their opinions. Commentaries writ-
ten by law clerks often refer to the opinions of law professors. There are informal
study groups of judges, prosecutors, attorneys, and law professors who exchange
views and study specific problems.
⁶³ Judgment of the Supreme Tribunal, 18 October 1926, Hyōron 16.

⁶⁴ Judgment of the Supreme Court, 26 November 1959, Minshū 13-12-1573.
3
The Administration of Justice
1. Historical Background
Japan’s system of courts can be traced back to the reforms of the mid-nineteenth
century. The Statute on Judicial Matters (shihō-shokumu-teisei) of 1872, the first
legislative act concerning the judicial system, was strongly influenced by French
law. This decree was replaced by the Code of Criminal Instruction of 1880, mod-
elled on the French Code d’Instruction Criminelle. This Code provided for the
organisation of courts dealing with criminal cases as well as the rules of criminal
procedure. By the early 1880s, a network of courts was established. Civil and
criminal cases started in the courts of first instance, moved on to High Courts,
and finally to the Supreme Tribunal (taishinin); (the Supreme Tribunal) which
was founded in 1875.
However, the French system was found to be excessively complicated, and as
early as 1886 preparation for a new law began as part of the legal reforms neces-
sitated by the planned adoption of the 1989 Constitution. Since the Constitution
itself was to be primarily based on the Prussian model, German advisers played
a major part in redesigning the court system. The Law on Court Organisation,
which replaced the Statute on Judicial Matters, was enacted in 1890.¹ According
to this Law, district courts were to be the courts of first instance in ordinary cases,
while ward courts were given jurisdiction for less significant cases. Appeals could
be brought to the courts of appeal, and finally to the Supreme Tribunal.
Under the Constitution of 1889, the independence of the court was guaranteed
to a certain extent. Judges could not be removed unless sentenced for committing
a crime, or dismissed by way of disciplinary proceedings. However, the courts
had to render judgment in the name of the Emperor. The Ministry of Justice was
in charge of the overall administration of the courts and even had the power to
appoint judges. Furthermore, the Public Prosecutor’s Office was attached to the
court at each level. Due to their close relationship with the Ministry of Justice,
the status of public prosecutors was regarded as being higher than that of the
judges.
¹ Law No. 6, 1890. K. Takayanagi, ‘A Century of Innovation’, in H. Tanaka (ed.), The Japanese
Legal System (Tokyo, 1976), pp. 167–171. W. Röhl, ‘The Court of Law’ in Röhl (ed.), History of Law
in Japan since 1868 (Leiden, 2005), pp. 711–769.

The jurisdiction of the courts was limited to civil and criminal cases under
this Constitution. Administrative cases were handled by administrative courts,
which were part of the administration. These courts were empowered to review
only a limited category of cases.²
After the Second World War, a large-scale law reform aimed at the democra-
tisation of the judicial system took place on the initiative of the Allied Forces. The
independence of the judiciary was explicitly guaranteed by the new Constitution,
which was adopted in 1946. The courts were also given jurisdiction over adminis-
trative cases, similar to the US system.
In 1947 the Law on Courts and the Law on the Public Prosecutor’s Office
were adopted. The Public Prosecutor’s Office was separated from the courts
and became an independent office at a level corresponding to that of the courts.
Together with the Law on Attorneys enacted in 1949, these laws—which replaced
the former Law on Court Organisation—are the basic legislation governing the
present judicial system.³
The Constitution provides that judicial power is vested entirely in the Supreme
Court and the lower courts established under the Constitution. There are five
kinds of courts: the Supreme Court, High Courts, district courts, summary
courts, and family courts. The Constitution prohibits the establishment of extra-
ordinary tribunals (Art. 76, para. 2). The Constitution also provides that any
organ or agency that forms part of the executive shall not be given ‘final judi-
cial power’. On the other hand, this provision is understood not to prohibit the
establishment of courts specialising in certain fields, such as tax or administrative
courts within the ordinary court system.
Along with the courts, there are administrative commissions which are vested
with quasi-judicial as well as quasi-legislative power. They are organisation-wise
part of the government, but enjoy independence in their operation such as the
Government Personnel Authority, the National Public Security Commission,
the Fair Trade Commission, the Labour Commission, and the Environmental
Dispute Coordination Commission. They were founded in areas where political
neutrality is particularly necessary, specialised expertise is required, or mitigation
of conflicting interests is the main issue. Introduced to Japan as part of the post-
war reforms, the commissions are modelled on the ‘self-regulating bodies’ in the
United States.
Decisions of these commissions are subject to judicial review. For instance,
decisions of the Fair Trade Commission can be appealed to the Tokyo High
Court. In such cases, the substantial evidence rule applies, i.e. the court is bound
by the facts found by the commission, insofar as the facts are based on substantial
evidence.
² H. Kaneko and M. Takeshita, Saibanhō (Judicial Process), 3rd edn (1994), pp. 49–50.
³ Laws No. 59, 60, 61, 1947 and No. 205, 1949.
The Administration of Justice 55
The scope of judicial power under the present Constitution is much broader
than in the pre-war period, due to the addition of the power of constitutional
review and the introduction of full judicial review. The Constitution provides that
the Supreme Court may determine the constitutionality of any law, ordinance, or
administrative decision (Art. 81). Until 1985, there were three cases in which the
Supreme Court ruled a law unconstitutional. On various occasions since 1985,
the Supreme Court has found the constituency system unconstitutional because
of discrepancies in the value of votes. In the latest case, in 2008, the Supreme
Court found a provision in the Nationality Law to be against equality and there-
fore, unconstitutional (see Chapter 2).
Despite the silence of the Constitution on the power of constitutional review
by the lower courts, it is acknowledged that they also have such power.⁴ In
fact, in a number of cases the lower courts have found certain laws or acts to be
unconstitutional.
Constitutional and judicial review is possible only when it is necessary
to render judgment on a specific case. Abstract normative control (abstrakte
Normenkontrolle) without reference to a specific case, as exercised by the German
Constitutional Court, does not exist in Japan. The limit of judicial power is
discussed in relation to judicial review.
The Law on Courts provides that courts, except in cases specifically provided
by the Constitution, shall have jurisdiction over all kinds of legal disputes
(Art. 3, para. 1). Thus, administrative cases fall within the jurisdiction of the
court almost without exception. The court accepted around 4,000 administrative
cases in 2006.⁵
2. The ‘Justice System Reform’
Since the post-war reform, for more than a half century, no significant change
took place. As years went by, various problems such as delays in court procedure,
the growing distance of the court from the general public, insufficient access to
the justice system, etc. became obvious. It was felt that the system needed major
reform. In 2001, the government embarked on a comprehensive reform of the
justice system. This was intended to support the ‘administrative reform’ or the
‘structural reform’, which was launched in the mid-1990s with an ambitious goal
of ‘converting the society to a posteriori-monitoring, redress society based upon
clear-cut rules and self accountability’.⁶
The Law on the Promotion of Justice System Reform of 2001 set the aim of
the reform as the development of a justice system that can achieve its purpose in
⁴ Judgment of the Supreme Court, 8 October 1952, Minshū 6-9-783.

⁵ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DMIN4.PDF>.
⁶ <http://www.kantei.go.jp/jp/singi/sihou/keikaku/020319keikaku.html>.
a speedier, more appropriate and effective manner under fair and due process
(Art. 2).⁷ The reform was not limited to the judicial system per se, but included
the recruitment and training of lawyers, and legal education.
In 2002, the government published the Programme for the Promotion of the
Judicial Reform.⁸ The Programme included the following items:
A. The Reform of the Civil Justice System
a. speeding up of the civil procedure (targeting reduction of time by
50 per cent) and improvement of case management;
b. reduction of the time needed for cases which require expert knowledge by
making use of experts other than lawyers in the procedure;
c. reform of the procedure involving intellectual property rights and labour
cases;
d. reform of the Family Court and the Summary Court;
e. expansion and invigoration of the ADR system;
f. reinforcement of judicial review of administration via the reform of the
Administrative Litigation Law.
B. Reform of the Criminal Justice System
a. speeding up of the criminal procedure and improvement of case
management;
b. introduction of defence counsel for suspects (before indictment) supported
by the public in the same manner as for defendants;
c. review of the detention and interrogation procedure.
C. Reform of the Supporting System
a. increase in the number of lawyers;
b. reform of legal education (introduction of the law school system);
c. reform of the Bar Examination;
d. reform of judicial training;
e. reform of the recruitment and training of judges.
D. Participation of the general public in the justice system
a. introduction of lay participation in the criminal procedure.
Between 2002 and 2006, a wide-ranging reform took place. Some new laws
such as the Arbitration Law were enacted. Various existing laws were amended,
including the Code of Civil Procedure and the Code of Criminal Procedure,
the Administrative Litigation Law, and laws in the area of intellectual prop-
erty. A major institutional change took place in the form of the creation of the
Intellectual Property High Court. The law school system was introduced and
the legal training system has undergone a major change. Lay participation in
⁷ Law No.119, 2001.

⁸ <http://www.kantei.go.jp/jp/singi/sihou/keikaku/020319keikaku.html>.
the criminal justice system—saiban-in—or the lay assessor system is to start

operation in 2009.⁹ These changes will be explained in the present book in the
respective places.
Looking at the reform in hindsight, it is only natural that a foreign observer
asked the question, ‘Why so far and so fast?’.¹⁰ A variety of explanations is avail-
able, but it should be added that in the late 1990s, Japan had not only failed to
recover from the aftermath of the burst of the economic bubble, but was experi-
encing a serious financial crisis. There was more or less a consensus among the
general public that radical change in the system was needed. This popular support
was essential in carrying out the reform.
Since then, insofar as the general structural reform is concerned, there is a
criticism that the reform has gone too far and too fast, creating a divide in society
and ignoring economically deprived people. Part of the justice reform, such as the
reform of legal education and the substantial increase in the number of lawyers,
may have to be reviewed in the near future. The lay assessor system is yet to be
tested.
3. The Court System
The Constitution provides that the entire judicial power is vested in the Supreme
Court and the lower courts established under the Constitution. Japan has a
three-tiered court system. There are five types of courts: the Supreme Court,
High Courts, district courts, summary courts, and family courts. In ordinary
civil cases, the case is first handled by the district court. Two appeals are allowed
against the original judgment. A party may appeal judgments of the district court
to the High Court. If either party is not satisfied with the judgment of the High
Court, appeal may be made to the Supreme Court. In minor criminal and civil
cases, the summary court has jurisdiction. In such cases the first appeal in civil
cases is made to the district court, and the second appeal is handled by the High
Court.¹¹
(1) District Courts

District courts are the primary courts of first instance. At present, there are 50
district courts, located in the centre of each prefecture. There are 910 judges and
9
An overview of this reform can be found in D. Foote, ‘Japanese Law at a Turning Point’, in
Foote (ed.), Law in Japan; A Turning Point (Seattle, 2007), p. xix ff,
¹⁰ Foote, ibid., p. xxv.
¹¹ For the court system in general in English, see <http://www.courts.go.jp/english/system/
index.html>.
580 assistant judges working at this level.¹² District courts have original jurisdic-
tion over ordinary civil and criminal cases. The district court also hears appeals
against decisions and judgments of summary courts in civil cases.
Large district courts, such as Tokyo and Osaka, have divisions within the
court. For instance, the District Court of Tokyo has divisions specialising in
administrative cases, traffic accident cases, intellectual property cases, bank-
ruptcy cases, etc.
(2) High Courts

High courts primarily handle appeals against judgments of the district and fam-
ily courts. High courts are located in eight major cities, and are staffed with a
total of 345 High Court judges.¹³ In criminal cases initiated in the summary
court, appeals are made to the High Court, bypassing the district court. The
High Court is a court of final instance for civil cases initiated at the summary
court level and reviewed (appellate review) by the district court.
In some cases, such as treason or a challenge to the validity of an election pro-
vided by the Public Election Law, the High Court has original jurisdiction. In
addition, the High Court is empowered to review the decisions of quasi-judicial
bodies, such as the Fair Trade Commission, the Patent Office, the High Maritime
Board, etc. In such cases, and also in treason cases, five judges instead of the nor-
mal three hear the case. The Tokyo High Court has a special division which deals
with cases involving the Anti-Monopoly Law. Concerning intellectual property
cases, there is the Intellectual Property High Court, which is a special division of
the Tokyo High Court (see below).
(3) The Supreme Court

The Supreme Court is the highest court of Japan. It is composed of fifteen justices,
including the Chief Justice. The Supreme Court sits either with a full bench or
a petit bench with five justices. Each case is first assigned to the petit bench. The
case must be transferred to a full bench where: (i) the appellant claims that the
law, ordinance, order, or administrative decision is unconstitutional; (ii) the
Supreme Court considers the law, regulation, order or administrative decision to
be against the Constitution, regardless of any assertion by the appellant; or (iii)
the Supreme Court’s decision goes against its own precedent. In the first case, if
the Supreme Court had previously found the act to be constitutional, the case
can be handled by the petit bench. Most cases are handled by the petit bench: the
full bench hears only a handful of cases annually.
¹² Supreme Court of Japan, Justice in Japan (Tokyo, 2000), pp. 30–31.

¹³ Ibid.
The Supreme Court is responsible for the standardisation of the interpret-

ation and application of law. As a court of appeal, it reviews mainly High Court
judgments.
In addition, in cases involving the habeas corpus procedure, the Supreme Court,
when it feels it is especially necessary, may itself decide the case, even if it is before
the lower court.¹⁴ Normally, the petition is handled by the district court or the
High Court. Incidentally, habeas corpus is seldom used in criminal procedure; it
is usually applied in disputes about parental rights over a child or those compul-
sorily hospitalised in a psychiatric institution.
The possibility of appeal to the Supreme Court is limited. The 1996 Code of
Civil Procedure has introduced a major reform of the appeal system. The sole
statutory ground for appeal to the Supreme Court is now an error of interpret-
ation of the Constitution or other violations of the Constitution in the original
instance court judgment (Art. 312, para. 1). On the other hand, a system akin to
certiorari was introduced. The Supreme Court has discretion to accept appeals
where the original judgment was counter to the precedents of the Supreme Court,
or involved other significant matters concerning the interpretation of law (Art.
318, para.1). This was intended to alleviate the burden of the Supreme Court, but
it is questionable whether this change would attain that goal.
The case-load of the Japanese Supreme Court is not light. In 2007 the Supreme
Court heard 4,814 civil and administrative cases. Most appeals to the Supreme
Court are dismissed—2,115 cases were dismissed without a hearing. Only in
three cases was the original judgment quashed.¹⁵ In criminal cases, out of 2,545
cases disposed of, 2,015 cases were dismissed and 518 cases were withdrawn by
the appellants. There were only three cases where the original judgment was
quashed.¹⁶
The Supreme Court is responsible for the administration of courts. It is empow-
ered by the Constitution to make rules regarding the procedure and practice of
courts, as well as matters relating to attorneys, the internal discipline of the lower
courts, and court administration (Art. 77). Before the end of the Second World
War the Ministry of Justice was responsible for court administration; this proved
to be a serious threat to the independence of the courts. Therefore, US advisers
who took part in preparing the present Constitution strengthened the independ-
ence of the judiciary by vesting the Supreme Court with the same rule-making
power as courts in common law countries exercise.
The Supreme Court has been fairly active in exercising its rule-making
power. Some are minor in nature, but more important ones include the Rules on
Criminal Procedure and Rules on Civil Procedure.¹⁷
¹⁴ Law No. 199, 1948.

¹⁵ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DMIN55~57.PDF>.
¹⁶ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DKEI02~04.pdf>.
¹⁷ T. Hattori, ‘The Role of the Supreme Court of Japan in the Field of Judicial Administration’,
1984 60 Washington Law Review 69, pp. 83–85.
The Constitution provides that Supreme Court Justices are appointed by
the Cabinet and attested by the Emperor (Art. 79, para. 1). The Chief Justice
is appointed by the Emperor on the advice of the Prime Minister. The Law on
Courts provides that justices should be selected from learned individuals who
have received legal education, and should be not less than 40 years of age. At least
ten out of fifteen justices are required to have over twenty years’ experience as
either president of a High Court, judge, summary court judge, public prosecutor,
or law professor (Art. 43).
When the Supreme Court was founded in 1947, it was comprised of five
professional judges, five practising attorneys, and five individuals from other
professions, including law professors. The composition of the Court has changed
significantly since then. As of August 2008, six justices were ‘career judges’ pro-
moted from the lower courts, two were public prosecutors, four were attorneys,
one was a law professor, and two were from the ministries. Of the six career
judges, four had worked in the Secretariat of the Supreme Court. Judges who
have been Secretary General of the Supreme Court have, without exception, later
become Supreme Court justices.
The Constitution introduced a system of referendum by which justices of the
Supreme Court are reviewed after their appointment and every ten years after-
wards (Art. 79, paras 2 and 3). The appointment itself takes effect immediately,
but judges may be recalled by a national referendum, which takes place at the
same time as the first general election after their appointment. This system of
general referendum was introduced after the Second World War, influenced by
the practices of some states in the United States. However, in fact, there has never
been a case where a Supreme Court Justice was recalled. Some people criticise the
referendum system on the ground that it has become mere routine. Despite this
fact, the symbolic significance of this system as a form of democratic control over
the Supreme Court cannot be denied.
(4) Intellectual Property High Court

The Intellectual Property High Court was set up as a court specialising in intel-
lectual property cases in 2005 in line with the Programme for the Promotion
of Intellectual Property.¹⁸ This was inspired by the US Court of Appeals for the
Federal Circuit, although it should be noted that the end result is rather differ-
ent.¹⁹ Technically it is a division of the Tokyo High Court. The jurisdiction of the
Intellectual Property High Court covers the following:
• appeals against the decisions of the Patent Office on patent, utility model,
design rights, and trade mark cases;
¹⁸ <http://www.ip.courts.go.jp/eng/index.html>.
¹⁹ N. Nakayama, ‘Chiteki-Zaisan-Seido-Kaikaku no Keii to Kadai (The Process of Reform of
the Intellectual Property System and its Tasks)’, Jurist, No. 1326, pp. 5–6.
• appeals against the judgments of Tokyo and Osaka District Courts on patent, util-
ity model, the right of layout-design of integrated circuits, and author’s right on
programme works (infringement actions, injunction, claims for compensation).
The jurisdiction of the district court has also undergone a major change. For
cases involving patent, utility model, the right of layout-design of integrated cir-
cuits, and the author’s right on programme works, the Tokyo and Osaka District
Courts have exclusive jurisdiction. There are specialised divisions with judges
with expertise in both courts (four in Tokyo and two in Osaka). Appeals against
judgments of both courts are heard by the Intellectual Property High Court.
Concerning cases on trade marks, design rights, rights of the seed and plant
grower, copyright (except for programme works), and trade secrets, this does not
apply. Appeals against the judgment of the district court in these cases are heard
by the respective High Courts, which have jurisdiction over the district court
which heard the case. If this High Court is the Tokyo High Court, then the
appeal is heard by the Intellectual Property High Court.
The Court normally hears the case with three judges, but in cases involving
important matters and where the providing of a unified opinion of the court in
a short span of time is necessary, a grand panel comprising five judges hears the
case. There have been some celebrated cases such as the Ichitaro case decided by
the grand panel.
A novelty of the Intellectual Property High Court is the system of technical
advisers, who assist the court by providing explanations of technical knowledge
in cases where such expertise is needed to clarify issues or to facilitate the proceed-
ings. Technical advisors are appointed by the Supreme Court as part-time offi-
cials from amongst experts such as academics and researchers who have expertise
in various fields of science.
In 2007, the Court accepted 105 appeals against judgments of the district court
and disposed of 88 cases. The appeal procedure took on average 7.6 months. This
is much shorter than in 1997 at the Tokyo High Court, where on average, it took
18.5 months. Concerning appeals against the decisions of the Patent Office, the
Court accepted 437 cases and disposed of 543 cases. The average time needed
was 9.1 months, as compared to 18.6 months in 1997.²⁰
It should be added that also at first instance (district court) level, the length
of time needed has been reduced in the last decade. While in 1996, the average
length of the proceedings at the first instance court was 22.7 months, in 2006, it
was 12.5 months.²¹
(5) Family Court

The family court specialises in family affairs and juvenile delinquency. Family
courts and their branches are located in the same places as district courts. There
²⁰ <http://www.ip.courts.go.jp/aboutus/stat_02.html>.
²¹ Supreme Court (ed.), Intellectual Property High Court (Tokyo, 2007), p. 18.
are about 200 judges and 150 assistant judges, plus 1,500 probation officers
working in the family court.²²
The family court is an innovation from the post-war reforms. The idea of
establishing a court which specialises both in juvenile cases and family affairs
came from the United States, where it was believed that stable family relations
were a prerequisite for the healthy upbringing of juveniles and the prevention of
delinquency. In 1947, family courts were established in Japan primarily on the
initiative of US advisers.²³
In 2007, the family court heard 748,561 family cases and 200,591 juvenile
cases.²⁴ The procedure in juvenile cases, as well as family affairs adjudication, is
conducted in camera and is fairly informal.
Matters such as the commencement and termination of guardianship and
curatorship, declarations of disappearance, and correction of civil registers,
which by their nature can only be determined by a decision of the court,
are handled via the adjudication (shinpan—determination) procedure at the
family court. Some cases, such as the distribution of matrimonial property
resulting from divorce or matters concerning probate, are required to go
through conciliation proceedings fi rst; these cases are adjudicated only when
conciliation has failed.
Family aff airs adjudication is handled by a single judge with the participa-
tion of family court councillors. In most cases, the decision can be appealed
to the High Court. Family aff airs conciliation proceedings are handled
by a conciliation committee which is composed of a judge and two family
aff airs conciliation commissioners. Councillors and commissioners are part-
time government officials selected from laymen with broad knowledge and
experience.
Previously, litigation involving the formation and the recognition of the exist-
ence of civil status, such as divorce and legitimisation, was handled by the district
court. A new Law on the Proceedings on Personal Status was enacted in 2003,
and these cases were made the jurisdiction of the family court. In divorce cases,
when the parties did not reach agreement at the conciliation proceedings at the
family court, the case used to be decided by the district court, but now the litigation
is also heard by the family court.
Other cases handled by the family court include cases of juvenile delinquency,
i.e. by minors under the age of 20, and cases involving adults who have com-
mitted crimes against the welfare of juveniles. In addition, the family court is
empowered to place under supervision juveniles who have not actually commit-
ted a crime but are likely to do so in the future. The law which provides for the
²² Justice in Japan, supra, p. 33.

²³ Supreme Court of Japan, Guide to the Family Court of Japan (Tokyo, 1991), pp. 5–7.
²⁴ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DKAJ01.PDF>; <http://www.courts.go.
jp/sihotokei/nenpo/pdf/B19DSYO01.PDF>.
jurisdiction and procedure of juvenile cases is the Law on Juveniles of 1948.²⁵ All
cases of juvenile delinquency are first brought to the family court. The court may
transfer a case to the district court or the summary court provided that the juven-
ile is not younger than sixteen.
(6) Summary Courts

Summary courts have jurisdiction over minor criminal and civil cases. There are
currently 438 summary courts, with 806 summary court judges.²⁶
In civil cases, summary courts handle cases involving claims not exceeding
1,400,000 yen. In criminal cases, offences which may result in a fine and/or
detention of up to 15 days fall within the jurisdiction of the summary courts.
Summary courts are not empowered to impose more than three years’ imprison-
ment. If the judge finds it necessary to impose a longer sentence, he must transfer
the case to the district court.
Summary court judges are not always career judges, i.e. judges who have been
appointed assistant judge and then promoted to a full judge. In addition to those
who have passed the uniform State examination, those who have worked for a
certain period in the court or the Public Prosecutor’s Office as a clerk can be
appointed a summary court judge (Law on Courts, Art. 45, para. 1).
The 1996 Code of Civil Procedure has introduced a system to deal with small
claims. Cases involving less than 600,000 yen can be handled by a simplified
procedure (Art. 368, para. 1). In principle, the court must complete the hearing
on the same day. The parties are obliged to present claims and evidence on that
day (Art. 370). Witnesses may give evidence without an oath (Art. 372, para. 1).
The party may ask for the case to be transferred to the formal procedure, unless
he pleaded in the first hearing, or when the hearing was completed (Art. 373,
para. 1).
4. Lay Participation
One of the unique features of the Japanese court system was that lay participation
was very limited. Despite its foreign origin, the Japanese court system did not
accommodate either a jury system or a system of lay assessors. There are some lay
elements in the system, such as civil conciliation commissioners and family court
councillors, and more recently in the labour adjudication procedure, labour adju-
dication commissioners are involved. However, these people are required to have
certain knowledge and experience, and a majority of conciliation commissioners
are attorneys.
²⁵ Law No. 168, 1948.

²⁶ Justice in Japan, supra, p. 36.
In fact, a jury system in criminal cases was introduced in Japan in 1923 and
existed until 1943.²⁷ Early in the period of modernisation, there were proposals
to introduce trial by jury. The first draft of the Code of Criminal Instruction
prepared in the early period included provisions for jury trials, as did the original
French Code. However, opponents of the jury trial argued that it was inappropri-
ate to leave fact-finding to laymen. They also asserted that the jury would be too
lenient and sometimes acquit those who were apparently guilty. The opponents
prevailed and provisions concerning jury trial were deleted from the draft. In the
early 1890s, discussions regarding the introduction of the jury trial resumed, and
after a prolonged debate the Law on Jury Trial was enacted in 1923.
This Law provided that in cases where imprisonment of over three years could
be imposed the case could be tried by a jury, and in cases where capital punish-
ment was possible jury trial was obligatory. However, there was a wide exception
to this rule: treason, military crimes, and other serious crimes against the State
were exempted from mandatory jury trial. In addition, the defendant was enti-
tled to waive his right to be tried by a jury. Jury decision was by a simple majority,
like the French jury. This was intended to avoid hung juries, which were said to be
common in England.
Although it was inspired by French and German law, the Japanese jury system
had certain peculiarities. The verdict of the jury was not binding on the court
and the judge was able to remand the case for retrial as many times as he wished,
until the verdict conformed with his opinion. Although the defendant was not
entitled to appeal against the verdict on factual grounds, the prosecution was
able to do so.
The Law was actually a compromise between the views of the government
anxious to prevent too many unjustified acquittals and the proponents of the
jury system. The democratic contents of the jury system were thus substantially
watered down. As was to be expected, jury trial as provided by this Law did not
gain popularity. In the first year, more than 100 cases were tried by jury. However,
the waiver of jury trial by defendants increased, later reaching more than 90 per
cent of eligible cases. Finally, in 1943, the law was suspended due to its cost and
inefficiency.
The failure of the Japanese jury is explained in various ways. First, it is often
pointed out that the Japanese have a tendency to trust professional judges
rather than their peers. Japanese judges are highly trusted by the people.²⁸
Modernisation in Japan was led by the government from above. In the process of
modernisation in the late nineteenth century, the government played a significant
role. Therefore, the government and officialdom were regarded as positive and
progressive forces rather than necessary evils which require constant control by
²⁷ For the history of jury trial in Japan, especially its political background, see T. Mitani, Kindai
Nihon no Shihōken to Seitō (Judicial Power and Political Parties in Modern Japan) (Tokyo, 1980).
²⁸ See J. O. Haley, ‘The Japanese Judiciary: Mainitaining Integrity, Autonomy and the Public
Trust’, in D. Foote (ed.), Law in Japan: A Turning Point (Seattle, 2008), p. 99ff.
the people. Common people had an inclination to defer to officialdom while dis-
trusting their peers. Therefore, trial by peers was not as attractive as trial by a
professional judge. Secondly, the fact that the verdict was not binding on the
court, and that appeal was not allowed on factual grounds, discouraged defend-
ants from jury trial. The Japanese jury system was never given a real chance of
success because of its status as a mere consultative body.²⁹
After the Second World War, the Code of Criminal Procedure was replaced by
a new code, heavily influenced by US law. The first draft of the Code on Criminal
Procedure did include provisions for jury trial. However, there was strong oppos-
ition from Japanese members of the drafting committee, who cited the failure
of the jury system before the Second World War. The Americans did not press
hard because, as one of the Americans stated later, they did not feel it necessary
to introduce the jury system, which was an institution historically rooted in very
different soil.³⁰
The introduction of trial by jury or lay assessors in criminal cases has been pro-
posed from time to time. There are various reasons for this. Some proponents of such
a reform intend to enhance the ‘democratisation’ of the procedure and bring them
closer to everyday reality. Others support trial by jury, since it may ‘vitalise’ the criminal
trial, which relies heavily on written evidence obtained at the pre-trial stage.
As part of the Justice System Reform, the system of lay assessors—saiban-in—is
to be introduced from 2009. A panel of three judges and six lay assessors selected
from among the general public is to hear criminal cases where the death of a
person was caused by an intentional criminal act, the death penalty, life impris-
onment, or imprisonment is applicable, or cases where a minimum one year’s
imprisonment is available. The judges and lay assessors jointly decide upon guilt
and if it is confirmed, on the sentence. The defendant is not allowed to waive the
trial with the participation of lay assessors.³¹
The system is yet to be tested, but there are some concerns. A leading con-
stitutional lawyer has pointed out that according to the new Law on Criminal
Procedure with the Participation of Lay Assessors, in order to find the defendant
guilty a majority of the panel—by taking into consideration the opinion of both
judges and assessors—is needed. This means that at least one of the three judges
needs to support the verdict, but on the other hand, even if two out of three
judges are against the verdict, the defendant can still be found guilty. Article 32
of the Constitution provides for the right to be heard by the court. Whether such
a panel can be regarded as a ‘court’ is questionable.³²
²⁹ M. Urabe, ‘A Study of Jury Trial in Japan’, in H. Tanaka (ed.), supra, pp. 483–491.
³⁰ M. Opler, Legal Reform in Occupied Japan (Princeton, 1980), pp. 145–147.
³¹ See <http://www.saibanin.courts.go.jp/shiryo/index.html>. See K. Matsuo, ‘Keiji-Saiban to
Kokumin-Sanka (Criminal Justice and the Participation of the People)’, Hōsō-Jihō vol. 60, No. 9,
pp. 1–20.
³² K. Takahashi, Rikken-Shugi to Nihon-Koku Kenpo (Constitutionalism and the Constitution of
Japan) (Tokyo, 2006), pp. 230–232.
5. Speeding up of the Court Proceedings
The Japanese Court System used to be renowned for its lengthy delays. In civil
cases in 1997, the average length of a trial was 11.9 months in the district court,
13.2 months in the High Court, and 3.1 months for summary court. Of the
2,839 civil cases disposed of by the Supreme Court, 220 cases had taken more
than 10 years after the case was brought to the court to be completed.³³ In con-
tested cases at the district court level, it takes on average 27.5 months until judg-
ment is rendered.³⁴
In criminal cases, the average length of trial in the district and summary courts
was 3.2 months and 2.3 months respectively in 1996. The process, from prosecu-
tion to final judgment, took on average 25.7 months.³⁵
The courts have endeavoured to speed up the procedure. One measure was
the pleading-cum-compromise (benron ken wakai) in the civil procedure, devel-
oped out of practice, and later endorsed by the Supreme Court. In this procedure,
parties meet in the judge’s chambers and efforts are made to identify the dis-
puted matter and focus on the issues. At the same time, parties are encouraged to
compromise, if appropriate. This procedure has been incorporated into the 1996
Code of Civil Procedure with some modifications.
The time needed for the proceedings has been gradually reduced since the late
1990s, with the introduction of a better case management and ensuring the assist-
ance of experts in complicated cases that require specialist knowledge. The reduction
of time needed in the proceedings was one of the main goals of the Justice System
Reform. This move was facilitated by streamlining the procedure in intellectual
property cases and the establishment of the Intellectual Property High Court.
According to a report by the Supreme Court in 2007, of the civil cases heard
by the district court, 63.9 per cent were completed within six months, and in 16.4
per cent of cases, between six months and one year. The average length of first
instance proceedings at the district court level was 7.8 months. In criminal cases,
the average length was 3.1 months. However, if the defendant contested guilt, the
average was 8.9 months.³⁶
6. Alternative Dispute Resolution
There are various alternatives to litigation in Japan. The most widely used of these
are conciliation proceedings in civil and family cases in district, summary, and
³³ Shihō-Tōkei-Nenpō, Civil Cases, supra, p. 190.

³⁴ Ibid.
³⁵ ‘Heisei 8 nen niokeru keiji-saiban no Gaikyō (An Overview of the State of Criminal Justice
in 1996) Part 1’, Hosō-jihō, 1998, No. 2, pp. 40–46.
³⁶ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DMIN16~19.PDF>; <http://www.courts.
go.jp/sihotokei/nenpo/pdf/B19DKEI08~10.pdf>.
family courts. In civil disputes, parties may agree to initiate civil conciliation pro-
ceedings at the summary court or district court instead of filing a suit. Even after
the suit has been filed, the court may transfer the case to conciliation proceedings
if it is considered suitable. In 2007, 254,013 new cases were accepted for civil
conciliation proceedings at the summary court level.³⁷
The Law on Civil Conciliation provides as the aim of conciliation the reso-
lution of disputes through mutual concession of the parties, taking into account
the ‘actual state of affairs and in conformity with reason’ (Art. 1).
Conciliation proceedings are handled by a conciliation committee composed
of a judge and two civil conciliation commissioners. Civil conciliation commis-
sioners are part-time government employees appointed by the Supreme Court
for a two-year term. They are selected from amongst people aged between 40
and 69 with ‘wide general knowledge’. They should either be qualified as attor-
neys, have knowledge useful in the resolution of civil disputes, or have sufficient
skills and experience in social life. In family cases, conciliation is handled by
a judge and two family court councillors, who are also part-time government
employees.
When the parties reach agreement in the conciliation proceedings, the docu-
mented agreement has the same effect as a court judgment. If the parties do not
reach agreement, the judge may, after consulting the conciliation commissioners
and considering relevant circumstances, make a recommendation for settling the
dispute. If neither party files an objection to this recommendation it has the same
effect as a successful conciliation.
The raison d’ être of conciliation is usually explained in two ways. First, it
enables the parties to avoid litigation, which can be expensive and time-
consuming. Secondly, in certain kinds of case it is preferable for the parties
to reach agreement through concession without confrontation, particularly in
disputes which presuppose a long-term relationship between the parties, such
as family disputes or landlord–tenant relations.
Apart from conciliation proceedings before the court, there are some infor-
mal means of dispute settlement out of court. These range from commercial
arbitration to conciliation and mediation, as well as agreements reached by the
parties through compromise (jidan). Disputes covered by these devices relate to
pollution, consumer credit, traffic accidents, construction and building prob-
lems, intellectual property disputes, securities transactions, medical malpractice
cases, and consumer protection.
Generally, conciliation and mediation are preferred to arbitration, since the
award of arbitration is binding on the parties, while in conciliation the parties
can decide whether to accept the outcome or go to court.
In some areas conciliation and mediation have come to be widely utilised.
The most extensive network for alternative dispute settlement administered by
³⁷ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DMIN73~78.PDF>.
central and local government is probably the National Consumer Affairs Centre
and its local affiliates.³⁸ The Centre was established by a law passed in the 1970s
and serves as the core institution for more than 300 local consumer centres set
up by local governments. These centres provide, amongst other functions, coun-
selling and advice to consumers. Matters handled by the centres range from
product liability and consumer credit to pyramid sales and other deceptive sales
methods.
Another means of dispute settlement administered by the government is the
Environmental Disputes Coordination Commission, which was set up in 1972.
Dispute settlement by the Committee is more flexible than court proceedings in
that, inter alia, the requirements for standing are not strict, and proceedings can
be initiated at the stage where no actual damage has emerged.³⁹
There are also various private non-profit-making bodies which handle dis-
putes. One example is the Centre for Settlement of Traffic Accident Disputes,
which was established in 1978. Although the Centre is funded by the Association
of Marine and Fire Insurance Companies, it operates independently of them. The
Centre retains more than 100 attorneys on a part-time basis and these attorneys
give advice and act as conciliators in disputes. The Centre gives advice and con-
ducts conciliation from the viewpoint of how the court would have decided, had
the case been brought before it.⁴⁰
As part of the Justice System Reform, the promotion of alternative dispute
resolution was listed in the agenda. As a result, the Arbitration Law was newly
enacted in 2003.⁴¹ The next year, the Law on the Promotion of the Use of Out
of Court Dispute Resolution (‘ADR Law’) was enacted.⁴² This Law provides for
the certification of organisations which handle such cases as a business by the
Minister of Justice.
7. International Commercial Arbitration
The previous Code of Civil Procedure had a set of rules on arbitration derived
from the German Code of Civil Procedure of the late nineteenth century, but
these rules were designed to deal with disputes between Japanese entities, and
lacked provisions on international arbitration. Besides, the Code dealt with ad
hoc, rather than institutional, arbitration. The new Code of Civil Procedure was
enacted in 1996, but the section dealing with arbitration was left out as a separate
law awaiting future amendments.
³⁸ Japan Consumer Information Centre: <www.kokusen.go.jp/>.

³⁹ <http://www.soumu.go.jp/kouchoi/english/index.html>.
⁴⁰ <http://www.jcstad.or.jp/about/index.htm>.
⁴¹ Law No. 138, 2003. ⁴² Law No. 151, 2004.
One of the reasons why arbitration in Japan has long been unpopular,
despite the existence of established arbitral institutions such as the Japan
Commercial Arbitration Association (JCAA) and the Tokyo Maritime
Arbitration Commission (TOMAC), may have been this rather obsolete arbi-
tration law. At the time of the civil procedure reform, it was generally agreed
that the arbitration law needed modernising too. Also, the lack of knowledge
of arbitration, as well as difficulties in selecting appropriate arbitrators arising
from linguistic and geographical factors, are often cited as the reason for the
disuse of arbitration.
The reform of arbitration law was eventually put on the agenda as part of the
Justice System Reform in 2001. The development of the system for alternative
dispute resolution (ADR) was envisaged as part of this reform, and it was recom-
mended that arbitration law (including international commercial arbitration) be
modernised.
The common understanding amongst those who took part in preparing the
new law was that it should be, as far as possible, in line with the United Nations
Commission on International Trade Law (hereinafter, ‘UNCITRAL’) Model
Law on International Commercial Arbitration. The new Law was enacted in
2003.
While the UNCITRAL Model Law is designed for international commer-
cial arbitration (although it does not exclude the possibility of accommodating
domestic arbitration), the new law in Japan is applicable to both domestic and
international arbitration.
Under the new Law, unless otherwise provided by law, an arbitration agree-
ment is valid only when the subject of the arbitration is a civil dispute that can be
settled by the parties (Art. 13, para. 1). The key therefore is whether the dispute
concerns a matter that is at the parties’ disposal.
The basic rule regarding the role of the courts in arbitration is set out in the
new law as follows (Art. 4):
The courts are entitled to exercise their power in relation to arbitration proceedings only
in cases provided by the present law.
This echoes the Model Law provision on the extent of court intervention.
Pursuant to the above principle, the law provides for specific instances in which a
court may become involved in arbitration:
• service of documents (Art. 12, para. 2);
• appointment of arbitrators (Art. 17, paras 2–4);
• challenge of arbitrators (Art. 19, para. 4);
• determination of Kompetenz-Kompetenz (Art. 23);
• examination of evidence (Art. 35, para. 1);
• setting aside of arbitral awards (Art. 44);
• enforcement of arbitral awards (Art. 46).
Arbitral tribunals are empowered to decide upon the existence or validity of
the arbitration agreement (Art. 23, para. 1). Objections to the jurisdiction of the
arbitral tribunal must be made before the initial pleadings are submitted, or, if
the grounds for making such an objection emerge in the course of the proceed-
ings, without delay, unless the tribunal acknowledges that there were justifiable
reasons for the delay (Art. 23, para. 2).
In cases where the arbitral tribunal rules that it has jurisdiction, the objecting
party may challenge the ruling in court within 30 days of receiving it. Pending
the court’s decision, the tribunal is entitled to proceed with the arbitration and
render an award (Art. 23, para. 5). No appeal is available, however, in cases where
the tribunal finds that it does not have jurisdiction, given that the effectiveness of
forcing the tribunal to arbitrate is questionable.
If an action is brought in court relating to a matter that is the subject of an
arbitration agreement, the court must dismiss the action at the request of the
defendant (Art. 14).
Parties can be represented by attorneys, including foreign attorneys. The 1986
Special Measures Law on the Handling of Legal Business by Foreign Attorneys
was amended in 1996 to allow such representation.
Unless otherwise agreed by the parties, the arbitral tribunal is empowered to
oblige either party to take any interim measures or measures of protection it con-
siders necessary in respect of the subject matter of the dispute, if requested to do so
by one of the parties (Art. 24). In such cases, appropriate security may be ordered.
The scope of the measures available to the tribunal in this respect is unclear.
This was due to the fact that at the time of enactment, UNCITRAL was still
working on this matter. It was expected that if the UNCITRAL’s effort bore
fruit, the Japanese Law would be amended. However, despite the amendment
to the Model Law on this part being adopted, there is no move to amend the
Japanese Law.
Both arbitral tribunals and parties are entitled to apply to the courts for assist-
ance in taking evidence by any means provided in the Code of Civil Procedure
that the arbitral tribunal considers necessary (Art. 35). These include commis-
sioning investigations, examining witnesses and experts, the examination of
written evidence, and on-site inspections, unless the parties have agreed not to
allow such applications. This provision, which is more detailed than that of the
UNCITRAL Model Law, allows courts to examine evidence that the arbitral tri-
bunals cannot. The underlying idea is that since arbitral awards are binding and
final, parties should have equivalent opportunities for fact finding as are available
to parties in civil proceedings. The former law contained a similar provision, but
the scope of the means available to the courts was unclear. The new law is more
specific and provides for the following:
• entrustment of investigation (Code of Civil Procedure Art. 186);
• questioning of witnesses (Arts 190–206);
• expert examination (Arts 212–217);

• entrustment of expert examination (Art. 218);
• order for the submission of evidence (Arts 220–225, 227);
• entrustment of service of documents (Arts 226–227);
• inspection (Arts 232–233).
If the application for assistance is made by a party, the arbitral tribunal’s consent
is required, so as to prevent parties from applying for the examination of
unnecessary evidence or in other ways abusing the system.
When courts examine evidence at the request of arbitral tribunals or parties
in arbitration proceedings, the arbitrators are entitled to inspect documents and
objects and, with the permission of the presiding judge, to question the witnesses
and experts. Although administered by the judge, the procedure thereby allows
the arbitrators to form their personal view in a direct manner.
A party may apply to a court to set aside an arbitral award on the following
grounds (Art. 44):
a. the arbitration agreement is invalid due to the incapacity of the party;
b. in accordance with the agreed law applicable to the arbitration agreement (or,
in the absence of such law, Japanese law), the arbitration agreement is invalid
for reasons other than incapacity;
c. the party making the application did not receive notice as required by Japanese
law (or, except for matters concerning public policy, alternative provisions
agreed by the parties) in the process of appointing arbitrators or in the arbitral
proceedings;
d. the party making the application was unable to make a defence in the arbitral
procedure;
e. the award contains decisions on matters beyond the scope of the arbitration
agreement or the submissions made in the course of the arbitration;
f. the composition of the arbitral tribunal or the arbitral proceedings were
contrary to Japanese law (or, except on matters concerning public policy, alter-
native provisions agreed by the parties);
g. the claim for arbitration concerned matters that are not arbitrable under
Japanese law;
h. the content of the award is contrary to public policy or good morals in Japan.
Recognition and enforcement can also be refused on the above grounds.
As for the recognition and enforcement of foreign arbitral awards, Japan
ratified the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards in 1961. There have been some cases where the enforce-
ment of foreign arbitral awards was contested in court, and the courts have found
those awards to be enforceable on the basis of the New York Convention, the
Geneva Convention, and various bilateral treaties. The enforcement of the China
International Economy and Trade Arbitration Commission (CIETAC) award
has been contested in court on several occasions. In one case, the Japanese party
argued, inter alia, that CIETAC was part of the Economic and Trade Department
of China and a fair outcome of the process could not be expected. The court
found that the arguments put forward by the Japanese party did not fall within
the grounds for refusal of enforcement as listed in the New York Convention,
and that no unfairness could be inferred from the mere fact that CIETAC was a
State-administered organisation. The court therefore allowed the enforcement of
the award.⁴³
⁴³ Tokyo District Court, 27 January 1994, Hanta, 853–266.

4
The Legal Profession
1. The Hōsō
Judges, public prosecutors, and attorneys form a distinct group of professions

which is called the hōsō. The term originally came from China where it denoted
those who administered the law.¹ Although it is often translated as ‘the legal
profession’ in English, this may be misleading because the term legal profession
usually presupposes a system where judges and public prosecutors come from the
rank of attorneys and therefore have a common foundation. In contrast, Japanese
judges are predominantly ‘career judges’, who join the court immediately after
completing legal training. Public prosecutors are also recruited directly from
the Legal Training and Research Institute. Thus, the mobility between different
professions is not as high as in other jurisdictions.
All members of the hōsō are required to pass the same uniform State examin-
ation and are trained in the Legal Research and Training Institute for one year.
Regardless of their future profession, they go through the same training at the
Institute.
The Japanese judicial system originated from continental Europe, where there
is a distinct line between judges and public prosecutors on the one hand and
attorneys on the other. In Germany, public prosecutors are regarded as part of
the judiciary together with the judges, although there is a State examination and
common training with Rechtsanwalts. In France, judges and procureurs are both
categorised as magistrats; there is neither a common examination nor training
with the avocats. Japan initially adopted the French system but later introduced a
common examination for all three professions and then, after the Second World
War, a common training as well. Therefore, the current system is similar to the
German system, except that public prosecutors are no longer considered to be
part of the judiciary, as they were before the war. However, the tradition con-
tinues and judges and public prosecutors are seen as representing ‘authority’ or
prerogative power, while attorneys often take pride in acting for citizens.
In addition to the hōsō, whose number is limited (around 30,000), there are
various types of professionals involved in the legal business. Apart from those
¹ A. Mikazuki, Hōgaku-Nyūmon (Introduction to Jurisprudence) (Tokyo, 1982), pp. 121–122.

in corporate legal departments, all must pass a special State examination and
go through some training. These people perform functions often performed by
attorneys in other countries.
2. Judges
Judges of the High Courts, district courts, family courts, and summary courts
are appointed by the Cabinet from a list prepared by the Supreme Court. The
Supreme Court assigns a judge to a specific court. The fi xed number of judges
as set in 2002 was 1,445 judges and 820 assistance judges (excluding summary
court judges).²
With the exception of summary court judges, most lower court judges are
‘career judges’. They begin their careers as assistant judges at a district court or
a family court after training at the Legal Training and Research Institute. They
must accumulate ten years’ experience as an assistant judge in order to become a
full judge. Almost all judges of High Courts, district courts, and family courts
start their careers in this way. High Court judges are promoted from among
district court and family court judges.
The Law on Courts provides that public prosecutors and attorneys can be
appointed to the Bench. Law professors may also be appointed to judicial posts
under certain conditions. The legislature apparently intended to allow some
exchange of personnel between the three legal professions: judges, public pros-
ecutors, and attorneys. However, while the exchange of personnel between the
courts, on one hand, and the Ministry of Justice and the Public Prosecutor’s
Office, on the other, is not exceptional, the appointment of judges from amongst
attorneys is rare. The Japan Federation of Bar Associations has been proposing
the appointment of judges from amongst attorneys for some time, and since 1988
the Supreme Court has started inviting attorneys to apply for the Bench. In the
1990s, less than five attorneys were appointed to the bench per year. However, in
the process of the ‘Justice System Reform’, recruitment of judges from attorneys
was promoted. As a result, the number is increasing.
The term of appointment for judges is ten years. This term is renewable and
judges are almost automatically reappointed. Most judges work in court until
their retirement age of 65. For Supreme Court justices and summary court judges,
the retirement age is 70. Although the renewal of the term has been almost auto-
matic, the Supreme Court is of the opinion that it has the power to refuse renewal
without providing reasons. In one case, a judge who refused to accept a transfer
was not reappointed after the expiration of his term.
² <http://www.courts.go.jp/saikosai/about/iinkai/kakyusaibansyo/iinkai_01_sankouisiryou_07.
html>.
The Legal Profession 75
Similar problems occur when an assistant judge is appointed as a judge after

the expiration of a ten-year term. This had been almost automatic until the late
1960s when the Supreme Court started to block the promotion of some assist-
ant judges. In one celebrated case, the Supreme Court rejected the application
of an assistant judge to be appointed a full judge. The Supreme Court gave no
reasons for the refusal. Because this assistant judge was a member of the Young
Lawyers Association, an organisation denounced by the Supreme Court as being
leftist, the Supreme Court was criticised for discrimination on political grounds.
Although the Supreme Court has some degree of discretion in making appoint-
ments and reappointments, it was questionable whether it exercised its power
properly in this case.³
The personnel administration department of the Supreme Court Secretariat
has the power to transfer and promote judges. Judges are usually moved between
large, medium, and small courts within their ten-year terms. On the other hand,
some select individuals are seconded to the Supreme Court Secretariat and then
return to the lower courts where they occupy key positions. At present, three out
of fifteen Supreme Court justices have worked in the Secretariat at some stage in
their career.
As part of the ‘Justice System Reform’, the system of recruitment and pro-
motion of judges has undergone significant changes. It was felt that the system
needed transparency and objectivity. Particularly noteworthy is the establish-
ment of the Consultative Committee on the Nomination of Lower Court Judges.
This body was set up in 2003 with eleven members, of which six are selected from
among judges, prosecutors, and attorneys, while five are appointed from outside
the hōsō. It gives recommendations to the Supreme Court on the nomination
of lower court judges. In response to the long-standing criticism that judges are
disconnected from the ordinary way of life, assistant judges are now seconded to
ministries, companies and other organisations to broaden their experience. They
may spend two years in a law firm on secondment.⁴
The Constitution of 1889 did not explicitly provide for the independence of
the court, but the present Constitution provides that all judges shall exercise their
power independently in accordance with their conscience and bound only by the
Constitution and laws (Art. 76, para. 3). As a corollary, the Constitution guaran-
tees that judges are not to be dismissed unless they have been either impeached,
or found by a court to be mentally or physically unfit (Art. 78). The Law on
Courts further guarantees that judges are not to be transferred, suspended, or
have their salaries reduced (Art. 48).
The procedure for impeachment is provided by the Law on the Impeachment
of Judges.⁵ The Impeachment Tribunal is attached to the Diet and is composed
³ H. Tanaka (ed.), The Japanese Legal System (Tokyo, 1976), pp. 558–562.
⁴ <http://www.courts.go.jp/saikosai/about/iinkai/kakyusaibansyo/index.html>.
⁵ Law No. 137, 1947.
of fourteen members who are members of the Diet, seven from each House. The
Tribunal exercises its power independently from the Diet, and is not bound by
its decisions. There is a Diet Prosecution Committee which decides whether to
bring a case to the Tribunal or not. The grounds for impeachment are serious
breach or gross neglect of duties, and misconduct which affects the authority and
credibility of the judge, irrespective of whether it took place in the course of his
duty or not. Any person may file a complaint with the Prosecution Committee
requesting the impeachment of a judge. The Tribunal may only dismiss or acquit
the judge; other disciplinary measures fall solely within the competence of the
Supreme Court and the High Courts. In order to dismiss a judge, the consent of
two-thirds of the members of the Tribunal who took part in the proceedings is
required.
There are also disciplinary proceedings of judges which are handled by the
court. The grounds for disciplinary action are breach or neglect of duties, and
misconduct which undermines the dignity of judges.
3. Public Prosecutors
The system of public prosecutors was first introduced to Japan in 1872, when the
influence of French law was predominant. The primary task of the public pros-
ecutor was to supervise judicial proceedings on behalf of the government, as with
the French ministère public. However, the role of the Public Prosecutor’s Office
soon shifted from that of a supervisory agency to that of a prosecuting agency.
The Law of Court Organisation of 1890 created the Public Prosecutor’s Office as
an agency of State prosecution.⁶
The Public Prosecutor’s Office was a highly centralised and hierarchical body.
It was made part of the judiciary, together with the court. The Public Prosecutor’s
Office at each level was attached to the court of the same level. Public prosecutors
regarded themselves as equal to judges, or even higher, and were treated as such.
Public prosecutors had, and still have, broad powers to prosecute offenders and
investigate crimes. Since private prosecution was not allowed in Japan, public
prosecutors monopolised the power to prosecute. They wielded a broad discre-
tionary power to decide whether to prosecute an alleged offender. This included
a power not to prosecute an offender even if the prosecutor is convinced of his
guilt, taking into account the nature of the crime, the character of the offender,
and various other factors. This discretionary power was not provided by law in
the pre-war period, but developed from the practice of the prosecutors. Together
with their broad power to issue warrants, the Public Prosecutor’s Office became
a powerful body, not only in relation to the court, but also within the political
system as a whole. This led to political bias and excess of power on the part of
⁶ Y. Noda, Introduction to Japanese Law (translated by A. Angelo) (Tokyo, 1976), pp. 135–136.
public prosecutors in the 1920s; in some cases they exercised their discretionary
powers in favour of a political party.⁷
One of the major purposes of the post-war judicial reform was to curtail the
power of the Public Prosecutor’s Office and to democratise its structure. However,
this attempt at reform was only partially successful. The Public Prosecutor’s
Office was separated from the court, but its highly centralised and hierarchical
system remained intact. While the power to issue warrants was given exclusively
to judges, the discretionary power of the prosecutors remained unhampered.
An attempt to control this discretionary power by introducing a grand jury sys-
tem met with strong resistance from the Japanese side at the drafting stage. The
Prosecution Review Board, which was eventually established, has more limited
powers than those of a US grand jury.⁸ However, as part of the ‘justice system
reform’ the power of the Board has been strengthened (see Chapter 18).
At present, the Law on the Public Prosecutor’s Office of 1947 is the basic law
regulating the organisation and powers of public prosecutors.⁹ The Code of
Criminal Procedure also has relevant provisions. The public prosecutor’s main
functions are the investigation of crimes and the prosecution of offenders. In
contrast to the pre-war system, warrants are issued by judges. At trial, the pub-
lic prosecutor proceeds with the prosecution and requests the court to apply the
appropriate law. Supervision of the execution of judgments also falls within the
competence of the public prosecutor. In addition, a public prosecutor can act as
the plaintiff or defendant, representing the public interest in civil cases.
The Public Prosecutor’s Office retains a hierarchical structure and is headed
by the Prosecutor-General. Public prosecutors are subordinate to their super-
ior prosecutors and ultimately to the Prosecutor-General. The four levels of the
Public Prosecutor’s Office are the Supreme Prosecutor’s Office, High Prosecutor’s
Offices, District Prosecutor’s Offices, and Ward Prosecutor’s Offices. These levels
correspond to the Supreme Court, High Courts, district courts, and summary
courts respectively.
The Minister of Justice is vested with supervisory power over the public pros-
ecutors. The Minister may give general instructions as well as instructions on a
specific case. In the latter case, he may only address the Prosecutor General and
may not directly instruct the prosecutor who is in charge of the case.
There are 2,578 positions for public prosecutors and assistant prosecutors.
Anyone who has passed the uniform State examination and finished their training
at the Legal Training and Research Institute can be appointed public prosecutor.
Judges and assistant judges as well as law professors and associate professors are
qualified to become public prosecutors under certain conditions.¹⁰ Most public
7
As for the history of the Public Prosecutor’s Office, see K. Matsuo, Keiji-shihō no Genri
(Principles of Criminal Justice) (Tokyo, 1978), pp. 124–126.
8
M. Opler, Legal Reform in Occupied Japan (Princeton, 1988), pp. 104–106.
9
Law No. 61, 1947.
¹⁰ Law on the Public Prosecutors’ Office, Arts 15, 18, and 19.
prosecutors, however, are recruited directly from among graduates of the Legal
Training and Research Institute. The Prosecutor General and his deputy and the
President of the High Public Prosecutor’s Office are appointed by the Cabinet
with the attestation of the Emperor. Other public prosecutors are appointed by
the Minister of Justice.
The Law on the Public Prosecutor’s Office guarantees that public prosecutors
shall not be dismissed, suspended, or have their salaries reduced against their
will, unless so provided by law (Art. 25).
4. Attorneys
Until the mid-nineteenth century, professional attorneys were not known in

Japan. The law of 1872 allowed the participation of representatives of parties
in civil disputes for the first time. It was only in 1890, with the enactment of
the Code of Criminal Instruction, that attorneys were allowed to participate in
criminal trials as defence counsel.
The first Law on Attorneys was enacted in 1893. Under this Law, attorneys had
to register at the district court. Attorneys formed a local Bar, which was super-
vised by the chief prosecutor of the district court. Disciplinary action against
attorneys was not taken by the Bar, but by the appellate courts.
At this stage attorneys were treated differently from judges and public pros-
ecutors, who were government officials. The Law on Attorneys of 1893 required
prospective attorneys to pass an examination which was different from that for
judges and public prosecutors. Judges and public prosecutors, as well as gradu-
ates of the law faculties of the imperial universities, were entitled to become
attorneys without taking the examination. Training for attorneys was separate
from that for judges and public prosecutors and was poorly organised. These
circumstances, combined with the traditional respect for officialdom, cre-
ated a negative image of attorneys as less prestigious than judges and public
prosecutors.¹¹
In 1914 the special examination for attorneys was abolished, requiring
prospective attorneys to take the same examination as judges and public prosecu-
tors. However, the practical training for attorneys was kept separate from that of
judges and public prosecutors until after the Second World War.
As part of the post-war reforms, a new Law on Attorneys was enacted in 1949.¹²
The Law abolished the supervision of attorneys by the Ministry of Justice, the
courts, and the Public Prosecutor’s Office. The Bar was given full autonomy,
¹¹ Tanaka, supra, pp. 549–553. See also R. Brown, Legal Aspects of Doing Business in Japan
(Chicago, 1983); R. M. Spaulding, Jr, Imperial Japan’s Higher Civil Service Examinations (Princeton,
1967), p. 77.
¹² Law No. 205, 1949.
including the power to admit its own members and to bring disciplinary actions
against them.
Those who have passed the uniform State examination and have finished one
year of practical training qualify as attorneys.
Attorneys are registered with local Bars which form the Japan Federation of
Bar Associations (Nichibenren). Local Bars may refuse registration in certain cases
where the applicant is likely to discredit the Bar or disturb the order of the Bar.
Unsuccessful applicants may appeal to the Japan Federation of Bar Associations,
and eventually to the Tokyo High Court.
Attorneys are required to open their offices within the territory of the local Bar
with which they are affiliated. Practices are small compared to that of US or UK
law firms. However, in recent years, major law firms with a capability of advising
on cross-border matters have emerged as a result of mergers and expansion.¹³
Unlike in the United States, it is uncommon for attorneys to work as staff
members of a corporation, government agency, or local government. Only in the
last decade have major corporations begun to retain in-house counsels.
The Japan Federation of Bar Associations has an ethical code which was
modelled on the American Bar Association Canons of Professional Ethics.
Disciplinary action can be taken against members who violate the rules of the
local Bar or the Japan Federation of Bar Associations, discredit or disturb the
order of the Bar; or commit an act which undermines the dignity of the Bar.
Any person may request the initiation of disciplinary proceedings against an
attorney. The ethical committee of each Bar, composed of attorneys, investigates
the case and decides whether disciplinary proceedings should be initiated. If the
committee decides to proceed with the case, the case is sent to the disciplinary
committee of the Bar. The disciplinary committee is composed of attorneys,
judges, public prosecutors, and academics. The disciplinary measures which can
be applied are a reprimand, suspension of business for up to two years, an order to
leave the local Bar, or dismissal. The decision of the disciplinary committee can
be appealed to the Japanese Federation of Bar Associations, whose decision can in
turn be appealed to the Tokyo High Court (Arts 56–71).
As of 2008, there are 25,012 attorneys in Japan compared to 16,749 in 1998.
There has been a steady increase in recent years in the number of attorneys as
a result of the policy to make attorneys more accessible to the general public.
This number seems small when compared with the United States, and to a lesser
extent, with European countries. However, it should be kept in mind that in
Japan there are a number of para-legals who perform functions which are per-
formed by attorneys in other countries. The number of these para-legals has
substantially increased in recent years.
¹³ B. E. Aronson, ‘Elite Law Firm Mergers and Reputational Competition’, 40 Vanderbilt

Transnational Law Journal, p. 763. Y. Nagashima and E. A. Zaloom, ‘The Rise of the Large
Japanese Business Law Firm’, in D. Foote, Law in Japan, supra, p.136ff.
5. Para-Legals
Together with attorneys, there are various professions which perform functions
related to legal issues. Tax attorneys, patent attorneys, judicial scriveners, as well
as in-house legal counsel perform functions which in some other countries are
performed by attorneys.
(1) Tax attorneys

A system of tax attorneys (zeirishi) was introduced in Japan as part of the post-
war tax reform. The US tax system was thereby introduced and tax assessment by
taxpayers replaced the previous system of tax assessment by government. Thus,
the necessity for tax advisors increased, and in 1950 the Tax Attorneys Law was
enacted.¹⁴ As of 2008, there are 70,517 tax attorneys and 1,621 tax attorneys’
firms registered.¹⁵
There is a special State examination for tax attorneys. Attorneys and account-
ants as well as certain categories of tax officials are exempted. The tax attorney’s
main functions are the calculation of taxes and drafting of documents to be filed
with the tax office on behalf of individuals and private businesses. Tax attorneys
also submit claims on behalf of their clients for refunds and represent tax payers
before tax tribunals.
(2) Patent attorneys

Patent attorneys (benrishi) offer advice and draft documents on patent issues.
They also appear in court and assist the client in patent and trademark cases.
There is a State examination for patent attorneys, but those who have worked in
patent offices as patent examiners for more than seven years are exempted from
examination. Attorneys are ipso facto qualified as patent attorneys. As of 2008,
there are 7,790 patent attorneys and 95 patent attorneys’ firms.¹⁶
(3) Judicial scriveners

The profession of judicial scrivener is as old as that of the attorney. In fact,
attorneys and judicial scriveners were not treated as separate professions in the
nineteenth century. It was only in 1919 that a special law on judicial scriveners
was enacted.¹⁷ The primary function of the judicial scrivener is the drafting of
¹⁴ Law No. 237, 1951.

¹⁵ <http://www.nichizeiren.or.jp/association/touroku.html>.
¹⁶ <http://www.jpaa.or.jp/about_us/information/pdf/kaiinbunpu.pdf>.
¹⁷ Law No. 197, 1950.
legal documents and filing them with the courts, the Public Prosecutor’s Office,
and legal bureaux on behalf of the client. They also represent clients in the regis-
tration of immovable property or companies, and in placing deposits in various
proceedings.
As of 2008, there are 19,255 judicial scriveners.¹⁸ As a rule, those who wish
to become judicial scriveners are required to pass a special examination for
scriveners. Until recently, the examination was prepared and administered by
the Association of Judicial Scriveners, but in 1978 a State examination was intro-
duced. Although this examination is substantially easier than the examination
for judges, public prosecutors, and attorneys, the introduction of a State examin-
ation has increased the prestige of the profession.
Judicial scriveners were not allowed to represent clients in court proceedings,
nor to give legal advice to clients. This was within the exclusive competence of
attorneys. In practice, however, judicial scriveners did give legal advice to their
clients in the course of drafting documents. Especially in localities where there
are not many attorneys, citizens relied on judicial scriveners for legal advice. In a
way, judicial scriveners are regarded by the public as attorneys of inferior rank, but
more easily accessible.¹⁹ As a result of the amendment to the Judicial Scriveners
Law in 2002, those who are certified by the Minister of Justice are entitled to
represent the client at the summary court.
(4) Corporate in-house counsel

Major corporations in Japan invariably have a department or a section which han-
dles legal matters. A survey of listed companies and other influential companies
conducted in 2005 indicated that 62.4 per cent of the respondent companies
had either a legal department or a legal section. The percentage has increased by
11.2 per cent from the 2000 survey.²⁰ The average number of staff is 6.7, but in
companies with a capital of 100 billion yen or more, the average number of legal
department staff was 25.6.²¹
65.4 per cent of the staff are graduates of the law faculty, but the number of
qualified attorneys among the staff is limited—53 in total in 32 companies.²²
This is in contrast to legal departments in US companies, which are staffed
primarily by attorneys. In Japan, attorneys are usually consulted when the issue is
very complicated and likely to result in litigation.
The primary functions of law departments are the reviewing of contracts; coor-
dination with attorneys retained as legal advisers with respect to litigation; the
¹⁸ <http://www.shiho-shoshi.or.jp/association/shiho_shoshi_list.php>.
¹⁹ T. Tashiro, ‘Shihō-shoshi kara mita Bengoshi-gyōmu tono Kōsaku (The Crossing of Business
between Judicial Scriveners and Attorneys seen from Judicial Scriveners)’, Jurist No. 842, pp. 76–77.
²⁰ Shōji-Hōmu ed., Kaisha-hōmu-bu; Jittai Chōsa no Bunseki-Hókoku (Corporate Legal
Department: Analytical Report of the 9th Survey) (Tokyo, 2006), pp. 8–9.
²¹ Ibid., p. 10. ²² Ibid., p. 11.
giving of internal advice on commercial, anti-monopoly, and industrial property
law etc.; and administration of matters concerning shares, including preparation
for general meetings of shareholders.²³ In major projects and transactions, the legal
department/section participates in 60.5 per cent of the respondents of the survey.
However, in 70.5 per cent of the respondent companies, in matters relating to the
suspension or alteration of projects and transactions, they can provide advice, but
the final decision is made by the relevant business department.²⁴
With the increasing number of international transactions and disputes related
to intellectual property, anti-monopoly law, and product liability—as well as the
recent strengthening of the compliance system—the role of the legal department
has gained significance.
6. Foreign Attorneys25
The Attorneys Law enacted in 1949 initially allowed lawyers who were quali-
fied in foreign countries to practise in Japan. However, this open-door policy
was short-lived. The Law was amended in 1955 to make Japanese nationality a
prerequisite for practice in Japan. This eventually became a trade issue in the
1980s between Japan and the United States. Pressure to lift restrictions also came
from the European Community. The process finally led to the enactment of the
Special Measures Law for Handling of Legal Business by Foreign Attorneys in
1986 which allowed foreign attorneys to practise under certain conditions.²⁶
The liberalisation of restrictions under this Law, however, was seen as insuffi-
cient by foreign lawyers and businesses, and the requirements and conditions for
the practice of foreign attorneys as set out in the Law has therefore been further
relaxed since then.
Foreign attorneys who are allowed to practise in Japan are called ‘foreign law
solicitors’ (gaikoku-hō jimu-bengoshi). Although the Japanese system does not
distinguish between solicitors and barristers, this denomination indicates that
foreign attorneys are not allowed to act in court or similar proceedings.
In order to qualify as foreign law solicitors, foreign attorneys are required
to apply to the Minister of Justice for a licence. The basic requirements are:
(i) qualification and three years’ experience in the home jurisdiction, and (ii)
intention to carry on business with integrity and the existence of a plan, resi-
dence, and the financial basis to discharge the duty appropriately and reliably,
as well as the capacity to compensate any damage caused to a client. The absence
²³ Ibid., p. 26. ²⁴ Ibid., pp. 27–28.

²⁵ For an overview of the system in English, see <http://www.moj.go.jp/ENGLISH/information/
gjb.html>.
²⁶ An unofficial translation of the Law is available at <http://www.cas.go.jp/jp/seisaku/hourei/data/
hls.pdf>. See also the explanation of the system at <http://www.moj.go.jp/ENGLISH/information/
gjb-01.html>.
of prior criminal conviction (imposition of a penalty of imprisonment) is also

required (Art. 10). The licence will be withdrawn if the foreign law solicitor
loses his qualification to practise in his home country.
The 1986 Law originally required five years’ practice in the home jurisdiction.
This was unpopular amongst foreign lawyers, since some foreign attorneys who
had been working in Japan as ‘trainees’ had to go back to their home country to
accumulate five years’ experience, although in reality they had been practising in
Japan for some years. Eventually, via the 1998 amendment, this requirement was
relaxed and now only three years’ practice is required. Experience in an auxiliary
capacity in Japan can be counted up to one year.
After obtaining a licence from the Minister of Justice, foreign attorneys
must register with the Japan Federation of Bar Associations (Nichibenren). The
Federation may refuse registration if the applicant is likely to disrupt the order
or harm the credibility of the Bar or the Federation. Following registration, a
foreign attorney will be admitted as a member of the Federation. Foreign law
solicitors are subject to the rules and the ethical code of the Federation and can be
disciplined by a special committee of the Federation.
Foreign law solicitors are allowed to practise only the law of their home jur-
isdiction. An exception is made for the law of a ‘specially designated country’:
a foreign attorney who is either qualified in a third country in addition to the
home jurisdiction, or has knowledge similar to that of a qualified attorney in that
country and more than five years’ experience of practice, may practise the law of
that third country by obtaining the appropriate designation from the Minister of
Justice.
Foreign law solicitors are not allowed to represent a client in court, in the Public
Prosecutors’ Office or other agencies, nor to prepare documentation for such pro-
ceedings. They may not act as defence counsel in criminal proceedings. The Law
was unclear as to the possibility of foreign law solicitors representing clients in
international arbitrations, but with the subsequent amendment to the Law this
has become possible (Art. 5-3). Foreign law solicitors are not allowed to serve doc-
uments on behalf of foreign courts and administrative agencies. Furthermore,
representing a client or preparing documents in cases involving the transfer of
rights in respect of real property located in Japan, or industrial property rights,
or mining rights which are subject to registration with a Japanese administrative
agency does not fall within the scope of permitted activities.
Foreign law solicitors are obliged to use the title of gaikoku-hō jimu-bengoshi
and to indicate the name of their home jurisdiction. Initially, their office was not
allowed to display the name of the foreign law firm for which they work, but this
requirement has now been removed. Foreign law solicitors must stay in Japan for
more than 180 days a year.
Foreign law solicitors were not allowed to employ Japanese attorneys, nor to
effect a joint practice with specific Japanese attorneys on the basis of a partnership
or any other contract. These restrictions were intended to prevent circumvention
of the ban on foreign law solicitors practising Japanese law. However, these restric-
tions, particularly the ban on forming a partnership, came under criticism from
abroad, and as a result they have been lifted. There are now a sizeable number of
foreign law firms which form a ‘foreign law joint enterprise’ with a Japanese firm
and also employ Japanese attorneys.
As of 2008, there are 272 foreign law attorneys registered in Japan, of which
by nationality, 110 are from the United States, 36 from the UK, 23 from China,
8 from Germany, and 49 from Japan.²⁷
7. The Uniform State Examination and Legal Training
Those who intend to join one of these professions are required to pass the uni-
form State examination for judges, public prosecutors, and attorneys. Th is
examination was known for its low pass rate. Of the total number of law faculty
graduates, which was annually around 36,000, only 500 became lawyers. Many
years of preparation were required for this annual examination and applicants
took the examination more than six times on average before passing it. The
average age of those who pass the examination was over 28 in the 1980s.
Attempts for reform of this system began in the 1990s. The Supreme Court,
the Ministry of Justice, and the Japan Federation of Bar Associations finally
agreed on some reform measures in 1991. In 1992, the number of those who
pass the examination was increased by 200. Restrictions on the number of times
the applicant may take the examination were not introduced, but 200 out of
the 700 successful applicants will be selected from among those who first took
the examination not more than three years ago. In 1998 the average age of the
800 applicants who passed the examination was 26.9. From 1999 the number
of applicants who passed the examination was increased to 1,000, and then to
1,500 in 2004.
In the process of the ‘Justice System Reform’, the need for the increase in the
number of attorneys was proposed in order to provide better legal service to the
general public. It was agreed to increase the number of the successful applicants
of the examination to 3,000.
The increase in the number of successful candidates is linked to the reform
of the system of legal education. In the past, legal education in Japan was pro-
vided at an undergraduate level. Of the four years at the university, law students
normally studied law for two to three years. As seen from the small number of
successful candidates of the State examination, law faculties were not designed
to educate and train professional lawyers alone. Only a limited number of stu-
dents took the State examination. Rather, the primary purpose of the law facul-
ties was thought to be the production of individuals with sound legal minds, not
²⁷ <http://www.moj.go.jp/index.html>.
necessarily lawyers. A mere ten out of ninety law faculties annually produce more
than ten graduates who pass the State examination for judges, public prosecutors,
and attorneys. Remaining graduates either enter the civil service or become busi-
nessmen. Law faculties may have been better characterised as institutions which
offer advanced social science education in the form of legal studies.
As part of the ‘Justice System Reform’, a US-type law school system, where law
is a graduate degree, was introduced. While in the past few students in law fac-
ulties intended to become lawyers, law schools instead are specifically intended
to produce lawyers. In order to take the State examination, it is necessary either
to have completed law school, or to pass a special preliminary examination. The
increase in the number of successful candidates in the State examination was key
to this system, since it would make the examination less competitive. Originally,
with less pressure resulting from the low success rate, law school students were
expected to be able to concentrate on the broadening of legal expertise.
However, things did not necessarily go as planned. There are now 70 law
schools and the total number of law school students is around 7,000. Even if the
number of successful candidates is to be increased to 3,000 by 2010 as planned,
the success rate will be much lower than initially predicted. This is very different
from the US law school system.
Furthermore, the Bar is now opposed to increasing the number of successful
candidates—certainly 3,000 successful candidates—on the grounds that it
would affect the quality of lawyers.
Those who pass the State examination are entitled to enter the Legal Training
and Research Institute, which is run by the Supreme Court. During their time at
the Institute, prospective judges, public prosecutors, and attorneys undergo the
same training. The trainees select their future profession at the end of the training.
The length of training was previously two years, but has been reduced to one year
since 2008. Instead, ‘on the job’ training is to be enhanced.
5
The Protection of Human Rights
1. Development of Human Rights Law
The concept of individual rights was unknown to Japan until the mid-nineteenth
century. Under the rule of the Tokugawa Shogunate, a status system had developed
in which ordinary people had few rights against the ruling territorial lords (daimyō)
and warriors (samurai). By the end of the Tokugawa Shogun’s rule, Western ideas
gradually started to penetrate Japan, and this flow of ideas continued after the
overthrow of the Tokugawa Shogunate in 1867. Works of British and French
philosophers such as J. S. Mill, J. Bentham, and J. J. Rousseau were translated into
Japanese and influenced intellectuals. Initially, ideas of the school of Natural Law
were widely accepted and inspired a movement which was called the ‘Civil Rights
and Freedom Movement (Jiyū minken undō)’, which gained momentum in the
1870s. The government was forced to enact the first Constitution and then estab-
lish the Imperial Diet (see Chapter 1).¹
The first Constitution of Japan was ‘granted’ to the ‘subjects’ by the Emperor
in 1889. This Constitution was modelled on the Prussian Constitution of 1850,
since the Emperor’s advisers considered that the monarchy of Prussia should be
the model which Japan should follow. It should be noted that what was left of the
liberal and democratic elements included in the Prussian Constitution, which
had in turn been influenced by the Constitution of Belgium, were effectively
omitted from the Japanese Constitution. Instead, the existence of harmonious
relations between the ruler and the ruled under the religious and ethical author-
ity of the ‘sacred and inviolable’ Emperor whose family had ostensibly ruled Japan
for eternity was stressed.
The guarantee of individual rights under this Constitution was by no means
sufficient. There was a short list of individual rights, which were guaranteed in
a chapter entitled ‘Rights and Duties of the Subjects’. These rights were by no
means regarded as inherent natural rights. Moreover, the rights listed in the
Constitution were guaranteed only ‘in accordance with the provisions of the law’,
giving the legislature freedom to limit individual rights by way of legislation. In
fact, the adoption of the Constitution was preceded by the enactment of laws
¹ M. B. Jansen (ed.), The Emergence of Meiji Japan (Cambridge, 1995), pp. 238–267.

The Protection of Human Rights 87
aimed at suppressing oppositions. A system of censorship was introduced soon
afterwards.
Institutions designed to guarantee individual rights were also limited. A system
of administrative courts existed, but its jurisdiction was very limited, and it was
made part of the administration, not the judiciary.
In the latter half of the 1920s, when Japan embarked on a course towards mili-
tarism, flagrant violations of individual rights occurred frequently. Especially
after the Law on the Maintenance of Public Security of 1925 was enacted, those
who were suspected of being communists or anarchists could be tried by sum-
mary procedure and convicted for their political beliefs. The Special Division
of the police, which was primarily in charge of controlling political dissidents,
resorted to various illegal means to suppress dissidents and non-conformists.
Freedom of conscience and freedom of expression were severely limited until the
end of the Second World War.
One of the primary goals of the post-war reforms was to provide better protec-
tion of individual rights. The present Constitution was enacted in 1946 and took
effect the following year. At the drafting stage of this Constitution, there was a
difference of views between the US advisers and the Japanese. The initial draft
was prepared by a government committee chaired by Professor Jōji Matsumoto,
who had a chair of commercial law at the University of Tokyo. Committee mem-
bers were not really aware of the necessity of a fundamental reform of the regime
set up by the 1889 Constitution. The committee specifically aimed at preserving
the status of the Emperor as the sovereign. It produced a draft constitution with
little change to the existing Constitution. The Allied Forces, despairing over the
reluctance of the Japanese to introduce reforms, prepared their own draft, which
became the basis of the present Constitution.
2. The Present Constitution
Unlike the 1889 Constitution, the present Constitution has a fairly long list of
fundamental rights. It is generally accepted that the list of rights and freedoms
explicitly provided in the Constitution is not exhaustive. Some rights and
freedoms which are not specifically provided by the Constitution are nevertheless
protected.² The following provision of the Constitution often serves as a basis for
such interpretation:
All people shall be respected as individuals, and their right to life, liberty, and the pursuit
of happiness should be the supreme consideration in legislation and in other governmental
action. (Art. 13)
² Judgment of Tokyo District Court, 28 September 1964, Kaminshū 15-9-2317 (After the
Banquet case).
Constitutional and judicial review was introduced in order to safeguard these
individual rights. Japan does not have a special constitutional court. The system
is based on the US system, where courts of all levels, from the Supreme Court
to the district court, may judge the constitutionality of laws, ordinances, and
administrative decisions. It is not rare for lower courts to render a judgment find-
ing certain laws or acts of government unconstitutional.
Since the wording of the Constitution is general, the role of the court in inter-
preting the Constitution is particularly significant. Vested with the power of
review over the constitutionality of laws as well as governmental acts and admin-
istrative decisions, it is not an exaggeration to say that Japanese Constitutional
law has developed on the basis of judicial precedent. In addition, because the
present Constitution has never been amended since its enactment, the courts
have played a major role in adjusting the Constitution to social changes which
have taken place since its inception.
There have been eight cases so far where the Supreme Court found a provision
of a certain law to be unconstitutional. For example, in 1973, the Court found a
provision of the Criminal Code that provides for harsher penalties for patricide
as compared to general homicide to be unconstitutional. These cases also include
two instances where the Court found the demarcation of the constituencies in
the lower house election, which resulted in a significant difference in the value
of the vote between constituencies, to be unconstitutional (see Chapter 4 for the
complete list of cases where the Supreme Court found a provision of a law to be
unconstitutional).
Foreigners are also entitled to protection by the Constitution, depending
on the nature of the right or freedom involved. As a general rule, the Supreme
Court pointed out that the guarantee of basic human rights by the Constitution
equally extends to resident foreigners in Japan, unless it is understood to address
Japanese nationals only in consideration of the nature of the right. This includes
the freedom of political activities.³ In a case where the right of a resident Korean
to apply for a management position in the Tokyo Metropolitan Government
was in question, the Supreme Court ruled that the regulation which does not
allow non-Japanese nationals to apply for the promotion examination was not
unconstitutional.⁴
When the constitutionality of fingerprinting of resident foreigners was
contested, the Supreme Court ruled that fingerprinting had a ‘close connection’
with privacy, which is protected by Article 13 of the Constitution, and that this
protection also extended to resident foreigners. However, the Court found that
such freedom is subject to restriction if restriction is necessary for reasons of
³ Judgment of the Supreme Court, 4 October 1978, Minshu 32-7-1223.

⁴ Judgment of the Supreme Court, 26 January 2005, Minshu 59-1-128.
public welfare.⁵ The right to social security benefits of a resident Korean was also
denied by the Supreme Court.⁶
There are rights that were not foreseen at the time of enactment of the
Constitution but which have gained significance since then. An example is the
right to privacy. In a celebrated case, a novelist published a fictional account based
upon the life of a politician, vividly depicting the relationship between the polit-
ician and his mistress. The politician sued the author for infringement of his right
to privacy and the district court upheld his claim. In this judgment, the right to
privacy was acknowledged for the first time as having a basis in this provision.
The parties reached a settlement after the death of the plaintiff and the case did
not reach the Supreme Court.⁷
The Supreme Court has acknowledged that the right to privacy was pro-
tected by Article 13 of the Constitution in a case where the constitutionality of
photographing a political demonstration by the police was at issue. The Court
ruled that individuals, as part of the right to privacy, have a right not to be photo-
graphed without consent. However, in this particular case, the Court found that
the activities of the police were justifiable, since the photographing took place
immediately after an offence had been committed and there was an urgent need
to collect evidence, and moreover, the actual photographing was conducted in a
socially acceptable manner.⁸
In a more recent case, the Supreme Court found that a university had acted in
breach of privacy by submitting a list of students who applied for the attendance
at a public lecture by the Chairman of the State of the People’s Republic of China
without their consent. Although the information contained in the list was not
particularly relevant, the expectation of students that such personal information
would not be arbitrarily disclosed to those people whom they would prefer not
to have access to it should be protected. Information contained in the list consti-
tutes privacy and should be protected by law.⁹
Also the concept of ‘general rights of personality’ based upon the same provi-
sion was recognised by the Supreme Court. In a libel case, the Court found that
the defamed person was entitled to seek an injunction on the basis of general
rights of personality.¹⁰ Traditional concepts such as freedom of expression have
also been expanded to cover rights and freedom which the legislature had not
5
Judgment of the Supreme Court, 15 December 1995, Keishu 49-10-842.
6
Judgment of the Supreme Court, 2 March 1989, Hanji, 1363–68.
7
For the history of the current Constitution, see S. Kozeki, Shin-Kenpō no Tanjō (The Birth
of the New Constitution) (Tokyo, 1989). H. Tanaka, Kenpō-Seitei-Katei Oboagaki (Notes on the
Procedure of Preparing the Constitution) (Tokyo, 1979). See also articles in Tanaka, The Japanese
Legal System (Tokyo, 1968).
8
Judgment of the Supreme Court, 24 December 1969, Keishū 23-12-1625 (Kyoto Zengakuren
Demonstration case).
9
Judgment of the Supreme Court, 12 September 2003, Minshu 57-8-973.
¹⁰ Judgment of the Supreme Court, June 11, 1986, Minshū 40-4-782 (Hoppō Journal case).
envisaged at the time the Constitution was enacted. Examples are the right to
know and the right to have access to information.
3. Restrictions on Human Rights
The way in which fundamental rights and freedoms are guaranteed differs,
depending on the nature of each right or freedom. The realisation of social rights,
such as the right to minimum standards of life (Article 25), depends largely on
the policy of the government.
The Supreme Court has maintained that this provision does not grant an indi-
vidual a specific right on which to base a claim to require certain measures to be
taken by the government.¹¹ In one case, a person living on social security sued the
government for not providing a minimum standard of living. The plaintiff argued
that her benefits were insufficient to lead a ‘minimum civilised life’ as guaranteed
by the Constitution. The district court upheld this claim, but the Supreme Court
ruled that whether a specific measure met the standard of ‘cultural and healthy
life’ as provided by the Constitution was to be primarily determined by the gov-
ernment and that unless it exceeded the scope of discretion, the court may not
interfere. This judgment was based upon the view that this particular provision of
the Constitution was a ‘programme’ provision generally obliging the government
to adopt certain measures, but not giving citizens a specific right to make a claim
against the State.¹²
Economic rights and freedoms are less firmly guaranteed than other rights and
freedoms. Thus, the right to ownership is guaranteed insofar as it is not contrary
to public welfare (Art. 29). In contrast, Article 21, which guarantees freedom of
expression, has no such reservation. Restrictions on individuals’ economic rights
may be inevitable in the contemporary social State: the right to private ownership
is not regarded as absolute anymore, as it used to be under a laissez-faire State.
Private ownership of land, for instance, is limited in various ways, such as by
planning controls, acquisition of property for public purposes, etc.
In contrast, rights, such as freedom of expression and freedom of conscience,
require stronger guarantees than economic rights. It is unavoidable that the exer-
cise of freedoms or rights brings people into conflict with the interests of others,
and that under certain circumstances these rights and freedoms may have to be
restricted. Nevertheless, due to their significance, it is generally accepted that the
restriction of these rights and freedoms should be kept to a minimum. Thus, the
doctrine of the dual standard, or the preferred doctrine, is generally supported in
Japan. The essence of this doctrine is that a stricter standard should be applied to
determine the constitutionality of measures which restrict individual rights, such
¹¹ Judgment of the Supreme Court, September 20, 1948, Keishū 23-12-1625.

¹² Judgment of the Supreme Court, 24 May 1967, Minshū 21-5-1043 (Asahi case).
as freedom of expression, freedom of conscience, and other related rights. The

rationale behind this doctrine is that these rights and freedoms are indispens-
able prerequisites to democracy and constitute the basis of the Constitution, and
therefore should be fully guaranteed.
The Supreme Court seems to accept this view. In a case for an injunction
against a libellous publication, the Supreme Court stated that in a democratic
State freedom of expression, particularly freedom of expression involving public
affairs, should be respected as an ‘especially significant constitutional right’.¹³
The Constitution provides that the rights and freedoms guaranteed by the
Constitution shall not be abused (Art. 12). The right to life, liberty, and the
pursuit of happiness shall be guaranteed insofar as it is not inconsistent with pub-
lic welfare (Art. 13). The Supreme Court initially resorted to this public welfare
clause in order to justify government actions and legislation which restrict rights
and freedoms. However, in the following years a more sophisticated approach,
primarily imported from the United States, came to be adopted.
Japanese judicial decisions on constitutional cases are often influenced by the
judgments of the US Supreme Court. Since the present Constitution had been
heavily influenced by the US Constitution, constitutional lawyers study US cases
and doctrines, and the courts often rely on doctrines developed in the United
States. For example, the provision of the Japanese Constitution on the right to a
speedy trial is modelled on the Sixth Amendment of the US Constitution. When
the Supreme Court of Japan rendered a judgment on this issue, it apparently
based its judgment on Barker v. Wingo.¹⁴ Another example is the Lemon test con-
cerning the separation of the State and religion.¹⁵ Similarly, the judgments of the
Warren Court in the 1960s had an especially significant influence on Japanese
constitutional cases.
The same applies to the tests adopted by the Supreme Court in deciding whether
a particular restriction on fundamental rights is constitutional or not. Tests such
as the ‘clear and present danger’ test, and the ‘less restrictive alternative’ test have
been introduced into Japan and have had some influence on case law.
In early cases, the Supreme Court tended to refer to the public welfare clause
and rather easily acknowledged the permissibility of restrictions of the free-
dom of expression in a liberal manner. The Court held that an act of the Tokyo
Metropolitan Government which prohibited the use of a park surrounding the
Imperial Palace for a May Day assembly was constitutional because this act served
public welfare, i.e. the maintenance of the park.¹⁶ Whether it is appropriate to
use a vague and general term such as ‘public welfare’ in order to restrict funda-
mental rights is questionable. After all, most laws can be construed as promoting
¹³ Supra, Hoppó Journal case. ¹⁴ 407 US 514 (1972).

¹⁵ Lemon v. Kurtzman, 403 US 602.
¹⁶ Judgment of the Supreme Court, 20 July 1960, Keishū 14-9-1243 (Tokyo Metropolitan Security
Regulation case).
public welfare in one way or another, so excessive reliance on this clause gives the
government carte blanche to restrict fundamental rights. It was suggested that a
more specific and workable standard for judging the legality of restrictions on
fundamental rights should be developed.
The concluding observation of the then UN Human Rights Commission on
the state of human rights in Japan published in 1998 criticised the approach
of the court in resorting to the public welfare clause in restricting human
rights.¹⁷
Perhaps influenced by the criticism of this approach, the Supreme Court
adopted instead a ‘balancing of interests’ approach. Here, the value of the
freedom or right in question, and the value which may be achieved by restrict-
ing it, are weighed against one another. The Supreme Court, in a case where the
political rights of government employees were at issue, ruled that the necessity
of guaranteeing the fundamental rights of workers and the necessity of enhan-
cing and promoting the interests of citizens as a whole should be weighed and
balanced to determine the constitutionality of restrictions on the employees’
rights.¹⁸
In a case involving the constitutionality of the general prohibition against gov-
ernment employees’ involvement in political activities, the Supreme Court ruled
that if the purpose of the prohibition is justified and the value of the interests
thereby does not unreasonably exceed the value of the interests protected by it,
then such a prohibition is not unconstitutional.¹⁹
In another case, the constitutionality of a court order requiring a television
company to produce a film reporting a riot was at issue. The court intended to
use the film as evidence in a case where members of the riot police were being
prosecuted for abuse of power against the students participating in a demonstra-
tion. Television companies argued that this order contravened the right to collect
news material, since if the film was used as evidence for the prosecution at trial it
could affect the relationship between the mass media and the people, and make
the future collection and reporting of information difficult.
The Supreme Court acknowledged that freedom to collect materials and
information for the press is guaranteed by the Constitution. However, the Court
proceeded to point out that such a freedom was naturally limited, and if there
is a need to have a fair and just trial, it can be limited to a certain extent. The
Court weighed the evidential value of the film and its necessity for securing a fair
¹⁷ UN High Commissioner for Human Rights, Concluding Observations of the Human Rights
Committee: Japan, 19/11/98. CCPR/C/79/Add. 102. Concluding observations of the Human
Rights Committee, Japan 2008 <http://daccessdds.un.org/doc/UNDOC/GEN/G09/401/08/
PDF/G0940108.pdf?OpenElement>
¹⁸ Judgment of the Supreme Court, 26 October 1966, Keishū 20-8-901 (Zentei-Chūyū case).
The Supreme Court overruled this precedent in 1973 in Zennórin Keishokuhó case.
¹⁹ Judgment of the Supreme Court, 6 November 1974, Keishū 28-9-393 (Sarufutsu case).
criminal trial, on the one hand; and the extent to which the freedom of collecting
information and material for the press would be harmed, and the effect it may
have on this kind of freedom, on the other. The Court, as a result of the balancing
of interest test, concluded that the restriction of press freedom was justified in
this case.²⁰
As seen from these examples, the balancing of interest approach does not
necessarily mean better safeguards for individual rights. When weighing free-
dom of expression against the interest of the public or the State, a mere balancing
of interests may lead to an overemphasis on the latter. Therefore, a more specific
standard has to be worked out in order to mediate conflicting interests and to
safeguard individual rights as far as possible.
Other tests such as the ‘clear and present danger’ test, the ‘less restrictive
alternative’ test, and the ‘void for vagueness’ test, etc., were introduced to Japan
by academics, and some of them have found the support of the courts.
Another test used at one time was whether the legal provision restricting free-
dom of expression was overly vague or not. The rationale behind this test is that
ambiguous provisions restricting the freedom of expression may entail abuse in
implementation and, as a result, are likely to discourage people from exercising
their freedom of expression. In a leading case, the constitutionality of a local
regulation which required the permission of the local government to organise a
mass assembly or procession was at issue. The Supreme Court ruled that although
it was unconstitutional to subject such assemblies and processions to the permis-
sion of the authorities in general, it was not unconstitutional to require a prior
permission as to the place or method of assembly or procession under a reason-
able and clear standard. In this case, the court concluded that the local regulation
was sufficiently clear and accurate.²¹
In a recent case the constitutionality of a local regulation intended to control
groups of motorbike riders was at issue. The regulation prohibited ‘meetings
and gatherings in a public place which incites anxiety or fear to the public’. The
Supreme Court acknowledged that the revelant provision as formulated was
inappropriate, and that if it were to be literally applied, the scope of prohibition
would be extensive and as such ‘problematic’ in relation to Article 21, para. 1 and
Article 31. However, the court ruled that if the provision was to be interpreted in
a narrow way, in light of the justifiability of the purpose of the regulation, reason-
ableness as the means of preventing harms, and the balancing of the benefit and
loss resulting from the regulation, it would not reach the level of breach of these
provisions of the Constitution.²²
²⁰ Decision of the Supreme Court, 26 November 1969, Keishū 24-6-280 (Hakata Station case).
²¹ Judgment of the Supreme Court, 10 September 1975, Keishū 25-8-489 (Tokushima Security
Regulation case).
²² Judgment of the Supreme Court, 18 September 2007, Minshu 61-6-601 (Hiroshima Bōsō-zoku
Jōrei case).
4. Freedom of Expression
Freedom of expression enjoys the highest of guarantees, since it forms the basis
of a democratic society.²³ The Constitution guarantees the freedom of expression
as follows:
Freedom of assembly and association, as well as freedom of speech, press and all other
forms of expression are guaranteed. No censorship shall be exercised. Secrecy of commu-
nication is guaranteed. (Art. 21)
The scope of this provision is fairly broad, covering freedom of assembly, associ-
ation, press and broadcasting as well as the right to know (access to information),
which is regarded as a prerequisite to the freedom of expression. Admittedly,
there may be cases where freedom of expression must be limited for the benefit of
other interests. The problem is how to maximise guarantees of freedom of expres-
sion while minimising the negative effect it may have on other interests protected
by law. There have been various cases where the extent of the guarantee of the
freedom of expression was at issue.
The constitutionality of public security regulations enacted by local govern-
ments was a highly controversial issue in relation to freedom of assembly in the
earlier days of the Constitution. These regulations required permission from
the relevant local authority for assemblies and processions; violations were pun-
ishable. The Supreme Court invariably upheld the constitutionality of these
regulations. The Court pointed out that although the regulation requires per-
mission, permission is to be given unless it is evident that public safety is at
immediate risk, and therefore the permission system is in effect equivalent to a
notification system.²⁴
A potentially significant restriction on the freedom of association and the
freedom of assembly is the Prevention of Subversion Law, which was enacted
in order to cope with violent political turmoil in the early 1950s. This Law is
intended to control the activities of groups and organisations involved in violent
and destructive acts, listing a wide range of such acts, from treason to distribu-
tion of leaflets and publication of documents for specific purposes. The Public
Security Review Board is empowered to prohibit processions and public assem-
blies involving these organisations and the publication and distribution of their
literature. The Board is attached to the Ministry of Justice and its members are
appointed by the Prime Minister with the consent of both Houses. Under certain
conditions the Board may order the dissolution of such organisations (Art. 7).
²³ N. Ashibe, Kenpō (Constitutional Law), 4th edn, supplemented by K. Takahashi (Tokyo,

2007), p. 165.
²⁴ Judgment of the Supreme Court, 20 July 1960, Keishū 14-9-1243 (Tokyo Metropolitan Public
Security Regulation case).
This Law had been criticised for potential violation of the freedom of expression
by the government. There has been no case where an organisation was ordered
to dissolve. In 1997, the Public Security Intelligence Agency applied for a dissol-
ution order against a religious cult which spread toxic gas in the underground,
killing many people, and committing various other atrocities, but the application
was rejected by the Board.²⁵
Concerning the freedom of publication, the constitutionality of the provi-
sion of the Criminal Code which punishes the distribution, sale, and public
display of obscene photographs, pictures, and other material (Art. 175) has been
contested. In 1953 the Supreme Court upheld the judgment of the High Court,
which convicted the publisher and the translator of Lady Chatterley’s Lover. The
Court pointed out that the maintenance of minimum sexual morals was part of
public welfare, and that freedom of expression can be restricted to this extent.²⁶
Fifteen years later, in a case concerning the work of the Marquis de Sade, the
district court acquitted the defendants on the ground that the artistic and ideo-
logical content of the work reduced the obscenity of the sexual content. The
Supreme Court overruled the judgment, but with four dissenting opinions.²⁷
The Court pointed out that the artistic and philosophical value of the work
does not in itself make the publication legal. In contrast, one dissenting opinion
acknowledged that the standard of obscenity is variable, and whether the work is
obscene should be judged by taking into account changes in people’s perception
of obscenity, as well as the artistic and philosophical value of the work. Another
dissenting judge argued that a balancing test should be applied, weighing the
harm which may be caused by publication against the value that the work may
have for the public.
Another ten years later, in a case where a publisher was prosecuted for publish-
ing a short pornographic work by a renowned author, the defendant argued that
Article 175 of the Criminal Code was vague and therefore unconstitutional. The
Supreme Court rejected this argument, but set out detailed standards for judging
the obscenity of publications. Thus, in order to determine whether a given work is
obscene or not, the extent of direct and detailed sexual description and its means;
its significance as part of the entire work; the relationship between such descrip-
tions and the ideas and thoughts expressed in the work; the structure and devel-
opment of the work; the extent of reducing sexual impetus by its artistic and ideal
content; and whether the primary purpose of the work is to appeal to the sexual
curiosity of the readers should be considered in the light of the healthy, socially
acceptable values of the time.²⁸
²⁵ T. Nonaka et al. (eds), Kenpō (Constitutional Law), vol. I, 4th edn (Tokyo, 2006), pp. 357–358.
²⁶ Judgment of the Supreme Court, 13 March 1953, Keishū 11-3-997 (Lady Chatterley’s Lover
case).
²⁷ Judgment of the Supreme Court, 15 October,1969, Keishū 23-10-1239 (Prosperity of Vice case).
²⁸ Judgment of the Supreme Court, 28 November 1980, Keishū 34-6-433 (Yojō-han Fusuma no
Shitabari case).
In another case, in which the Supreme Court found a publication to be
obscene, one concurring justice pointed out that when judging the obscenity of
the work, hard-core pornography and quasi-hard core pornography should be
distinguished. While hard-core pornography is not of much value to society, and
is therefore not protected by the Constitution, some types of soft pornography
are covered by the Constitution. In such cases, the harm which may result from
sexual expression should be weighed against the value of the work.²⁹
In the pre-war period there was a system of censorship in Japan. The pre-
sent Constitution explicitly prohibits censorship (Art. 21). Th is provision is
also understood to prohibit other forms of prior restraints on the freedom of
expression. In this regard, the constitutionality of the system of reviewing text-
books for schools by the then Ministry of Education was contested. School
textbooks are subject to screening by the Ministry, and only books approved
by the Ministry can be used in schools. In one case, a textbook written by a
professor of history was rejected by the Ministry for, inter alia, ‘describing the
Second World War in excessively negative terms’. The author was advised by
the Ministry, for instance, to omit the phrase ‘reckless War’, and to replace
‘invasion of China’ by ‘advancement into Asia’. The author sued the government
for revocation of the decision.
The district court found that the screening system itself does not amount to
censorship insofar as the system is administered adequately and does not extend
to the appropriateness of the author’s thought as expressed in the publication. In
this particular case the court found that the screening had gone too far and inter-
fered with the thoughts of the author, therefore constituting a violation of the
freedom of education guaranteed by the Constitution.³⁰ The High Court upheld
this judgment, but the Supreme Court reversed the decision and remanded it to
the High Court, since the Ministry’s guideline for the screening of textbooks had
substantially changed in the meantime, and there was a possibility that the plaintiff
had lost standing.³¹ The High Court denied the plaintiff standing.
The concept of censorship is a much-debated issue. There is a school of thought
which defines censorship as a system in which administrative authorities check
the content of expression in advance of its publication and prohibits those expres-
sions. Another school of thought defines censorship in a broader way. Censorship,
according to the proponents of this view, means prior review of the contents of
expression by public authorities. It should be noted that courts are included in
‘public authorities’. A variation of the second view extends the scope of ‘prior
restraint’ by including restraints imposed after publication, but before it reaches
the public.³²
²⁹ Judgment of the Supreme Court, 8 March 1983, Keishū 37-2-15.

³⁰ Judgment of Tokyo District Court, 17 July 1970, Hanji 604–29.
³¹ Judgment of the Supreme Court, 8 April 1982, Minshū 26-4-594.
³² See N. Ashibe, Kenpō-gaku (Constitutional Law) vol. 3 (Tokyo, 1998) pp. 262–272.
In this regard, the constitutionality of customs control over the importation

of foreign pornography was contested in the court. The Japanese Customs Tariff
Law prohibits the importation of items which are likely to affect public morals. A
person who was refused importation of films and magazines from Europe brought
an action in court. The Supreme Court ruled that censorship was impermissible
without exception, but that customs control did not amount to censorship. The
court defined censorship in a narrow way, and denied that customs control was
censorship, since (i) the work had already been published overseas and therefore
customs control did not prohibit its publication; (ii) the task of a customs official
does not include reviewing the thoughts within the publication; and (iii) decisions
of the customs office are not final but are subject to judicial review. Four dissenting
opinions found the relevant provision of the Customs Tariff Law to be excessively
vague and therefore unconstitutional.³³
Another problem is the constitutionality of interim measures in the civil pro-
cedure, when used to prevent the publication of slanderous material. Although
these are interim measures pending the examination of the case on its merit by
the court, such measures could have the same effect as a prior restraint on free-
dom of expression. In one case the district court granted a preliminary injunction
against the publication of a periodical containing libellous statements concerning
a candidate in an election for prefectural governorship. This decision was upheld
by the High Court. The publisher appealed to the Supreme Court, arguing that
an injunction in this case was contrary to Article 21 of the Constitution.
The Supreme Court denied that a preliminary injunction in such a case con-
stitutes censorship, since it is not a thorough and comprehensive prior check of
the contents of expression by an administrative agency. The court admitted that
a prior restraint is likely to be broader in effect than a restriction after the event,
and is potentially open to abuse. Therefore, prior restraints on the freedom of
expression are only allowed under strict and clear conditions derived from the
Constitution. Furthermore, when the expression concerns public interest, such
as criticism of government officials or candidates for election to public office, it
requires special protection by the Constitution and in principle an injunction
should not be granted.
On the other hand, as an exception, when the statement is not true, or it is
evident that the statement is not primarily intended for the benefit of the public,
and at the same time the victim is likely to suffer serious and irrecoverable loss, an
injunction should be granted. The Court found that in this particular case, such
an exception should be applied and the injunction should be granted.³⁴
Defamation is punishable under Article 230 of the Criminal Code by a max-
imum of three years’ imprisonment. In some jurisdictions a strict libel law unduly
restricts the freedom of expression, but in Japan, following the adoption of the
³³ Judgment of the Supreme Court, 12 December 1984, Minshū 38-12-1308.

³⁴ Judgment of the Supreme Court, 11 June 1986, Minshū 40-4-872).
present Constitution, a new provision was added to the Criminal Code in order
to safeguard freedom of expression. Article 230–2 provides that when a libel-
lous act concerns matters of public interest, and the act is primarily intended for
the benefit of the public, then whether the asserted fact is true or not should be
judged, and if the defendant proves that the statement was true he shall not be
punished.
A magazine published articles criticising a large religious organisation. In one
article the private life of the head of this organisation was examined. The article
asserted, inter alia, that he had used his influence to make his mistresses members
of the Diet. The district court and the High Court found the defendant guilty,
but the Supreme Court quashed the judgment. The Court ruled that the behav-
iour of a private person could also be a matter of public concern, depending upon
the nature of this person’s social activities and the extent of his influence on soci-
ety. Therefore, by virtue of Article 230–2, the defendant should be allowed to
prove the truth of his statement.³⁵
In another case, the Supreme Court found that, even when the defendant
could not prove the truth of the statement concerning public interest, if he had
mistakenly but with reasonable grounds believed that the statement was true,
there is no libel.³⁶
In a recent case, the Supreme Court acknowledged the right of a reporter
not to disclose the source of information. In this case, the Japanese court was
requested by a court in the United States to obtain testimony of a reporter
of the Nippon Broadcasting Corporation. The reporter refused to give tes-
timony on the ground that it constituted a professional secret. The Supreme
Court ruled that not all professional secrets, but only professional secrets which
deserve protection should be protected and refusal to testify justified. Whether
the information is worth protecting should be determined by balancing the
disadvantage caused by the disclosure of the secret against the possibility of
finding the truth and ensuring of fair trial which may be sacrificed by the
refusal to testify. In this case, the Court acknowledged that if the information
source of reporters is liberally disclosed, the mutual trust between the provider
of the information and the reporters would be harmed, the smooth collecting
of information in the future would be damaged, and ultimately, the business of
the media companies would be seriously affected. Therefore, the secrecy of the
information source constitutes a professional secret. In conclusion, the Court
allowed the witness to refuse to disclose the information.³⁷
³⁵ Judgment of the Supreme Court, 16 April 1981, Keishū 35-3-84 (Monthly Pen case).
³⁶ Judgment of the Supreme Court, 25 June 1969, Keishū 23-7-975 (Evening Wakayama Jiji case).
³⁷ Decision of the Supreme Court, 3 October 2006, Minshū vol. 60, No. 8.
5. Access to Information
In the era of rapid technological progress, in which information tends to be con-

centrated in the hands of governmental agencies and powerful private entities,
the necessity of ensuring that individuals have access to information has become
increasingly important. It is also necessary to control the use of information
regarding individuals collected by the government and such entities. Therefore,
the right to know or the right of access to information has received growing atten-
tion. Such rights are now considered to be covered by the Constitution as part of
the guarantee of freedom of expression.
In 1988 the Law on the Protection of Computer Information on Individuals
was enacted. This regulates the handling of information on individuals pro-
cessed and stored in computers by government agencies.³⁸ According to this Law,
government agencies are prohibited from using information on individuals for
purposes other than the original purpose for which files were compiled. Any per-
son may require a government agency to disclose information concerning them
which is stored in a computer, and if necessary demand its alteration.
In 1999, the Law on the Access to Information Held by Administrative
Agencies was enacted.³⁹ The goal of the Law is to encourage disclosure of infor-
mation and enhance accountability of the government by providing people with
a right to request disclosure of documents. Agencies covered by this Law include
ministries, the Cabinet Office, committees, and the Government Accounting
Office. Any person may request the disclosure of documents possessed by these
agencies (Art. 3). Government agencies are under a general obligation to disclose
information (Art. 5).
However, not all government information is accessible. Exceptions include:
• information on individuals through which a specific individual can be iden-
tified; information on juridical persons or individuals involved in business
which, if disclosed, may harm their legitimate interest;
• information which the head of an administrative agency has reasonable
grounds to believe could, if disclosed, harm national security or relationships
with other countries; information whose disclosure the head of an administra-
tive agency has reasonable grounds to believe may affect the maintenance of
public security and order, including prevention or investigation of crimes;
• information on internal or mutual discussions of governmental agencies and
local agencies, which may hamper a frank exchange of views or appropriate
decision-making if made public;
³⁸ Law No. 95, 1988. ³⁹ Law No. 42, 1999.

• information on the activities or business of government or local government
agencies that may affect the implementation of such activities or business
(ibid.).
Access can be denied without disclosing whether the relevant document is in the
possession of the agency or not, if disclosing this would mean the disclosure of
the information itself (Art. 8).
The right to know becomes particularly vulnerable where State secrets are
involved. Japan does not have a comprehensive law to penalise the divulgence
of State secrets, such as the UK Official Secrets Act. Regarding State and local
government employees, however, the leaking of information obtained in office is
a criminal offence.
In a case where a reporter obtained information from a female employee of the
Ministry of Foreign Affairs, when this reporter was prosecuted together with the
employee, the reporter argued that he had merely exercised his right to know and
the right to collect information for the press. The Supreme Court ruled that the
freedom of the press to collect information should be appropriately respected,
and that persuading a government employee to disclose a secret is not in itself
illegal, provided that it is for reporting purposes and the means employed are
socially acceptable in the light of the spirit of the entire legal order. However, in
this particular case the Supreme Court ruled that the means employed to obtain
information were unjustifiable and that the reporter had exceeded the scope of
permissible activities.⁴⁰
6. Equal Treatment
The Constitution guarantees equal treatment as follows:

All people are equal under the law and there shall be no discrimination in political,
economic, or social relations because of race, creed, sex, social status, or family origin.
(Art. 14, para. 1)
The Supreme Court found a provision of the Criminal Code punishing homi-
cide of a direct ascendant to be unconstitutional. The Code provided for either a
death sentence or life imprisonment for patricide, while ordinary homicide was
punishable by death or a minimum of three years’ imprisonment. The Court
examined whether this constituted unreasonable discrimination, and found
the difference between the penalties to be excessive and the provision therefore
to be extremely unreasonable.⁴¹ However, in another case on a provision of the
Criminal Code, which punished the injury of a direct ascendant more severely
⁴⁰ Decision of the Supreme Court, 31 May 1978, Keishū 32-3-457 (Divulgence of Ministry of
Foreign Aff airs’ Secret case).
⁴¹ Judgment of the Supreme Court, 4 April 1973, Keishū 27-3-265 (Patricide case).
than ordinary injury, the Supreme Court ruled that the difference in penalties
(life or a minimum of ten years’ imprisonment, as compared with a maximum
three years’ imprisonment) was not unreasonable.⁴²
The problem of whether the provision on equal treatment has a direct effect on
discrimination by private entities was at issue in a case where a company refused
to employ a person after a probationary period of employment because of his past
political activities. In this case, the Supreme Court, in theory, acknowledged that
unreasonable discrimination by private entities can be invalidated through the
general provisions of private law, such as the provision on public order and good
morals in the Civil Code (Art. 90). However, in this case, the Supreme Court
ruled that, based upon the freedom of contract, companies are in principle free to
employ workers and to set conditions of employment, and refusal to employ on
the ground of political belief was not in itself unlawful.⁴³
In a case concerning gender discrimination, the Supreme Court found an
office regulation which provided for a different retiring age for men and women
to be unreasonably discriminatory and void by virtue of this provision of the
Civil Code.⁴⁴ There is also a lower court judgment which found that mandatory
retirement for women who got married was discrimination.⁴⁵
Also concerning gender discrimination, the constitutionality of a provision of
the Civil Code which prohibits an ex-wife from remarrying for six months after
divorce was contested. The High Court examined whether this was necessary
and the only available measure to prevent disputes concerning the paternity of a
child, and concluded that the provision was unconstitutional, since it was evident
that it was unreasonable in relation to the goal which it aimed to achieve. The
Supreme Court, however, overruled this judgment and found the provision to be
constitutional on the ground that differential treatment had a reasonable basis.⁴⁶
Another contested issue in recent years is the treatment of illegitimate chil-
dren in inheritance law. According to the Civil Code, an illegitimate child is
entitled to only half the share of a legitimate child in inheritance (Art. 900). The
plaintiff claimed that this was discrimination. The Supreme Court rejected this
argument since this provision was designed to strike a balance between the pro-
tection of legitimate marriages on the one hand and the protection of illegitimate
children on the other, and the arrangement in the Civil Code cannot be regarded
as excessively unreasonable in relation to this legislative goal.⁴⁷
The court tends to determine the constitutionality of differential treatment
by considering whether the measure at issue is reasonable or not. This approach
⁴² Judgment of the Supreme Court, 26 September 1974, Keishū 28-6-329.

⁴³ Judgment of the Supreme Court, 12 December 1973, Minshū 27-11-1536 (Mitsubishi Plastics
case).
⁴⁴ Judgment of the Supreme Court, 24 March 1981, Minshū 35-2-300 (Nissan Motors case).
⁴⁵ Judgment of the Tokyo District Court, 20 December 1966, Rōmin 17-6-1407 (Sumitomo
Cement case)
⁴⁶ Judgment of the Supreme Court, 5 December 1995, Hanji 1563–81.
⁴⁷ Decision of the Supreme Court, 17 July 1995, Minshū 49-7-1789.
stems from the reasonableness test applied by the US Supreme Court. However,
the reasonableness test is applied in Japan in a rather general and abstract way.
The necessity of introducing a more sophisticated approach, taking into account
the grounds for differential treatment and the nature of the rights involved, has
been felt for some time. It is proposed, for instance, to apply three different tests:
the reasonableness test, the strict scrutiny test, and the strict reasonableness test,
similar to the US tests.⁴⁸
In a recent case involving the Nationality Law, the Supreme Court has gone
further. In this case, the provision of the Nationality Law requiring the marriage
of the parents for a child between a Japanese father and a foreign mother to be
eligible for Japanese nationality was at issue. The plaintiff argued that the differ-
ential treatment between a child who was legitimised by the father, but whose
parents had not married, and whose parents had married, was a breach of Article
14, para. 1 of the Constitution.
The Supreme Court ruled that if the legislative purpose of the differentiation
was not justifiable, or if there was no reasonable link between the legislative
purpose and the arrangement at issue, it was against Article 14, para. 1 as an
unreasonable act of discrimination. In this case, the intended purpose of the Law
was found to be justifiable, but the link between the purpose and the differen-
tial treatment was not justifiable any more in the light of social changes over the
years. The provision was found to be unconstitutional.⁴⁹
Concerning equal treatment, the discrepancy in the value of votes in the
election is a major issue. At one stage, the difference in the value of votes between
the constituencies reached almost five to one. The Supreme Court ruled that if
the inequality in the value of the votes reached an excessively unreasonable level,
unless there was a justifiable reason, it was unconstitutional. In this case, the
value of the vote in a general election was 1:4.99, and the Court found this to have
exceeded a reasonable level and the allocation of seats was unconstitutional. The
Court also noted that the legislature had failed to take measures to rectify the
situation within a reasonable period.⁵⁰ The Court did not nullify the result of
the election, but simply declared that the relevant provision in the Public Election
Law was unconstitutional.
In another case involving a Lower House election, the difference was 1:3.94
and the Court found this to be a generally unreasonable level, but took into con-
sideration that it was not long since the legislature had taken some corrective
measures, and refrained from finding this to be unconstitutional.⁵¹
However, in the 1983 general election in which the discrepancy reached
1:4.40, the Supreme Court again found this to be unconstitutional, particularly
⁴⁸ Ashibe, Kenpō-Gaku, supra, pp. 24–31.

⁴⁹ Judgment of the Supreme Court, 4 June 2008.
⁵⁰ Judgment of the Supreme Court, 14 April 1976, Minshū 30-3-223.
⁵¹ Judgment of the Supreme Court, 7 November 1983, Minshu 37-9-1243.
since the legislature had failed to take rectifying measures after the 1985 general
election.⁵²
The Supreme Court requires less strict adherence to equality in the value of
votes in Upper House elections in comparison with Lower House elections,
since, according to the Court, the system of the Upper House election takes into
consideration various historical, political, economic, and social factors other
than the number of the population. In 1998 the Supreme Court ruled on the
constitutionality of the Upper House election in which the difference in the
value was 1:4.81.
The Supreme Court pointed out that the legislature is entitled to exercise
reasonable discretion which may affect the equality of votes; and by taking into
account the legislative measure implemented in 1995, which reduced the difference
in the value of votes, concluded that the difference of 1:4.81 had not reached the
level of impermissible inequality, and that the Diet had not exceeded its scope of
discretion in the allocation of the seats. There were five dissenting opinions which
found the election to be unconstitutional and an opinion which set the ratio of 4
to 1 as a threshold of unconstitutionality.⁵³
The Court has continued to hold Upper House elections in which the difference
was 1:4.79 and 1:5.13 respectively, since then.⁵⁴
7. Freedom of Religion
Freedom of thought and conscience is also guaranteed by the Constitution

(Art. 19). This is followed by a provision which guarantees freedom of religion,
and prohibits religious acts and education by the State (Art. 20).
An important issue is the separation of State and Shintoism under this provi-
sion. Before the end of the Second World War, the political system was ultimately
based upon the religious authority of the Emperor, and Shintoism was regarded
as the State religion. As part of the post-war reforms, religion was separated from
the State. However, in recent years there have been cases where this principle
seems to have been undermined. An example is the practice of Prime Ministers to
visit the Yasukuni Shrine, a Shinto shrine built before the Second World War in
order to commemorate Japanese soldiers who fell in the wars. The constitutionality
of such visits is questionable, and has been contested in court.
In a way, Shintoism is closely intertwined with daily life in Japan. There
are cases where local governments become involved in activities which have a
Shintoist nature. In one case, a city authority organised a ceremony which was
⁵² Judgment of the Supreme Court, 17 July 1985, Minshu 39-5-1100.

⁵³ Judgment of the Supreme Court, 2 September 1998, Minshu 52-6-1373.
⁵⁴ Judgment of the Supreme Court, 14 January 2004, Minshu 58-1-56; 4 October 2006,
Saibansho-Jihó, 1421–1.
intended to ensure the safety of workers before starting construction of a city
gymnasium which was conducted by a Shintoist priest. The High Court found
this ceremony to be unconstitutional, but the Supreme Court overruled this
judgment. The majority opinion maintained that a complete separation of State
and religion was impossible, and the Constitution should not be construed in
the sense that any kind of relation between the State and religion was impermis-
sible. The purpose of the allegedly religious activity, the place of the ceremony,
the intention of the organiser, and its effect on the general public should be taken
into account, and only when the relationship is unreasonable from the viewpoint
of the social and cultural background of the country, should the act be found to
be impermissible. Five dissenting justices were of the view that the ceremony was
nothing less than religious and therefore unconstitutional.⁵⁵
In another case, a city government provided land free for a war memorial
maintained by an organisation which conducted Shintoist and Buddhist cere-
monies in front of the memorial. The Supreme Court ruled that the act of the
local government was not unconstitutional.⁵⁶
The test applied by the Supreme Court seems to have been inspired by the
Lemon test which is applied in the United States. This test examines (i) the pur-
pose of the given act, (ii) whether or not the primary effect of the act is to promote
or suppress religion, and (iii) whether or not there is an excessive entanglement
with religion.⁵⁷ Some lower courts have applied this test and concluded that the
act in question was unconstitutional, but the Supreme Court has always found
such acts to be constitutional by applying the same test.
However, in a more recent case, the Supreme Court found a donation by a
prefectural government to a Shintoist shrine to be unconstitutional. In this case,
a prefectural government had been paying donations to the Yasukuni Shrine on
a regular basis. The Supreme Court ruled that in light of the purpose and effect
of the given act, if the relationship between the State and religion exceeded the
level permissible under social and cultural conditions in Japan, it was uncon-
stitutional. Religious activities prohibited by the Constitution are those which
assist, promote, enhance, or suppress interference with religion. In determining
whether a given act is prohibited, not only the appearance of the act, but also the
place where the act is performed, the perception by the general public of the act,
the intention of the organiser, the existence of religious meaning in the act and
effects on the general public amongst other factors should be considered. In this
case the Court found that the donation would be seen by the general public as
religious, and the donor must have been aware of its religious meaning. The act
creates an impression amongst the general public that the prefecture was specific-
ally supporting a particular religious organisation and inspires public interest in
⁵⁵ Judgment of the Supreme Court, 13 July 1977, Minshū 31-4-533; Tsu Jichinsai case.
⁵⁶ Judgment of the Supreme Court, 16 February 1993, Minshū 47-3-1687 (Minomo Chūkokuhi
case).
⁵⁷ Ashibe, supra, p. 137. Lemon v. Kurtsman 403 US 607 (1971).
this organisation. Thus the Supreme Court found this act to be unconstitutional
by a 13 to 2 majority.⁵⁸
8. Due Process of Law
The Constitution, which has a close affinity to the US Constitution, also contains
a provision on the due process of law which provides that no one shall be deprived
of life or liberty or face a criminal sanction without recourse to procedures estab-
lished by the law (Art. 31). It evidently has its origins in the Fifth and Fourteenth
Amendments of the US Constitution. It differs from the US model in that the
provision requires observance of procedures established by law, but does not
explicitly require the procedures to be ‘due’. Also, property rights are not expli-
citly covered by the provision. Nevertheless, the courts and academic opinion in
Japan have interpreted this provision broadly.
First, it is generally agreed that this provision covers substantive as well as pro-
cedural due process. Thus, the requirements that statutory provisions restricting
fundamental rights should not be vague, that the content of regulation should be
reasonable, and the doctrine of proportionality are derived from this provision.
Secondly, the procedure and the substance of the law restricting fundamental
rights should be fair, although the provision does not explicitly require fairness.
For example, notice and a hearing are required for limiting fundamental rights
on the basis of this provision. In a case where the plaintiff ’s property in the
possession of a third party was confiscated, the Supreme Court found that the
confiscation, with no opportunity for the owner to defend his rights, was a breach
of due process.⁵⁹ Thirdly, the provision is not limited to life, liberty, or imposition
of criminal penalties. Restrictions on property rights are also understood to be
covered by this provision.
The principle of nulla poena sine lege is not explicitly set out in the Constitution,
but there is no doubt that this is also guaranteed by the Constitution, which com-
mits itself to safeguarding fundamental rights and freedom under this due pro-
cess provision. Some court judgments presupposed that the due process provision
includes this principle. The Constitution does explicitly guarantee some related
principles. Thus, no one shall be held criminally liable for an act which was lawful
at the time it was committed or for an act of which he has been acquitted (Art. 39).
The same provision also prohibits double jeopardy.
The due process provision and the provisions protecting the rights of suspects
and defendants which follow are also extended to administrative procedure.
In one case, whether the order of the tax authority to produce documents was
compatible with this provision was contested. The Supreme Court ruled that
⁵⁸ Judgment of the Supreme Court, 2 April 1997, Minshū 51-4-1637 (Ehime Tamagushi-ryō case).
⁵⁹ Judgment of the Supreme Court, 28 November 1962, Keishū 16-11-1593.
these provisions primarily covered criminal procedure, but do not necessarily
exclude other procedures.⁶⁰ More recently, in a case on the procedure under a
special law to protect the Tokyo International Airport, the Supreme Court con-
firmed that administrative procedure is not excluded from protection under the
due process provision.⁶¹
9. Rights of Suspects and Defendants
The Constitution guarantees the rights of defendants and suspects in criminal

procedure (Arts 33–39). After the adoption of the Constitution with these pro-
visions, the Code of Criminal Procedure was totally amended in 1948. While
the previous Code was primarily based upon German law, the present law is
influenced by US law.
The Constitution provides that no one should be arrested without a warrant
issued by a competent judicial officer, i.e. by the court or judge, and not by public
prosecutors or police officers, except in cases where the arrest is in flagrante delicto.
Similarly, no one shall be arrested or detained unless he is immediately notified of
the grounds of arrest or detention and given access to legal advice. Furthermore, a
person cannot be detained without justifiable reason, and upon the request of any
person such grounds shall be shown in an open court in the presence of defence
counsel (Arts 33 and 34). The Habeas Corpus Law was enacted in 1948.⁶²
In addition to freedom of expression, which also guarantees the secrecy of
communications, homes and other property are protected from unlawful search
and seizure (Art. 35).
The use of torture and cruel punishment by government officials is strictly
prohibited (Art. 36). The constitutionality of capital punishment was tested
against this provision. The Supreme Court ruled that when the crime committed
by the offender is extremely serious and, considering the purpose of general deter-
rence, requires an extreme penalty, then the death penalty is justified.⁶³ Capital
punishment still exists in Japan, despite calls from other countries to suspend it
(see Chapter 18).
Defendants have a right to a fair and speedy public trial (Art. 37, para. 1). In
cases where all judges agree that an open trial is likely to damage public order or
public morals, a closed trial is allowed. However, if the procedure involves a pol-
itical offence, crimes related to the publication of information, or fundamental
rights guaranteed by the Constitution, the trial must be held in open court.
⁶⁰ Judgment of the Supreme Court, 22 November 1972, Keishū 26-9-544 (Kawasaki Minshō
case).
⁶¹ Judgment of the Supreme Court, 1 July 1992, Minshū 46-5-437 (Narita Shinpō case).
⁶² Law No. 199, 1948.
⁶³ Judgment of the Supreme Court, 12 March 1948, Keishū 2-3-191.
Defendants have a right to legal representation, and if they cannot afford it

the State has the responsibility to provide counsel (Art. 37, para. 3). More than
98 per cent of defendants are assisted by counsel in the first instance court.
Around 76 per cent of defendants are assigned counsel by the State, of which 10
per cent had counsel from the pre-trial stage.⁶⁴ Defendants are also guaranteed
the right to cross-examine all witnesses (Art. 37, para. 2). Cross-examination was
introduced into Japan after the Second World War. Hearsay evidence is not gen-
erally allowed in court, but exceptions to this rule are fairly wide. Documents
which contain statements recorded during the investigation still play a significant
role at trial.
The Constitution also guarantees that no one should be forced to make incrim-
inating statements (Art. 38, para. 1). This provision has its origin in the Fifth
Amendment of the US Constitution, which guarantees the right against self-
incrimination. Concerning this provision, the Road Traffic Law, which requires
those who cause a traffic accident to report it to the authorities under the threat of
criminal penalty, was found constitutional by the Supreme Court.⁶⁵
Confessions made under compulsion, torture, or threat, or after unduly pro-
longed arrest or detention, shall not be admitted as evidence. No one should be
convicted when the only proof against him is his confession, i.e. corroborative
evidence is required (Art. 38, paras 2 and 3).
10. Economic Rights
Economic rights, such as the right to choose one’s occupation, the right of
residence and removal, and property rights are protected by the Constitution.
Concerning property rights, the Constitution declares that property rights are
inviolable, but in the following paragraph provides that the contents of prop-
erty rights are to be defined by law in accordance with public welfare. Therefore,
although the system of private property itself is safeguarded by the Constitution,
the legislature is empowered to restrict property rights by way of legislation.
Furthermore, private property may be used for public purposes with appropriate
compensation (Art. 29). The Law on Acquisition of Land for Public Purposes, for
example, provides for the procedure of compulsory acquisition of land, but with
payment of compensation.⁶⁶
The constitutionality of a provision in the Forestry Law was contested in court.
The Law restricted the right of joint owners of a forest to demand division of the
property, in order to prevent the forest being divided into excessively small lots.
The Supreme Court found this provision to be unconstitutional on the ground
⁶⁴ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DKEI23~24.pdf>.
⁶⁵ Judgment of the Supreme Court, 2 May 1962, Keishū 16-5-4959.
⁶⁶ Law No. 219, 1951.
that the restriction was neither reasonable nor necessary in view of the aim of the
law, and was in breach of Article 29.⁶⁷
The Constitution provides that every person has the right to choose an
occupation insofar as it is not against public welfare (Art. 22, para. 1). This covers
the right to do business. Japan has a highly regulated economic system. In this
regard, the constitutionality of various restrictions on businesses set by the gov-
ernment has been at issue in court. An example is the Law on Pharmaceutical
Business, which restricted the locations of new pharmacies. This law was found
to be unconstitutional by the Supreme Court, since the restriction was neither
reasonable nor necessary.⁶⁸ On the other hand, the Supreme Court found that
the licensing system for the sale of alcohol was constitutional. In this case, an
entrepreneur contested the refusal by the local tax agency to grant a licence on
the ground of ‘lack of solid financial basis’ on the part of the applicant. The
Supreme Court ruled that the licensing system was within the discretion of the
legislature.⁶⁹
In any case, due to the progress of the regulatory reform since the mid-1990s,
such excessive regulations have been removed.
11. The Role of the Supreme Court
As seen above, one may safely conclude that, overall, human rights are appropri-
ately protected in Japan. The system of constitutional/judicial review has been
functioning properly, in the sense that citizens who have felt their constitutional
rights have been infringed by government action are able to challenge such action
in open court. There are many cases where citizens have contested the constitu-
tionality of laws, ordinances, or government action, and in some cases, have been
successful.
There is a criticism that the Supreme Court has been reluctant to rule against
restrictions imposed by the legislature or the government on fundamental rights.
Some judgments in the 1970s showed a tendency to uphold the constitutionality
of laws and acts by simply juxtaposing public welfare and individual rights.
In one case, the Supreme Court even reversed its own decision only seven years
after a judgment which held a provision of the Law on Government Employees
to be unconstitutional. This involved the constitutionality of the provision which
punished government employees for their involvement in political activity. The
1966 judgment of the Court ruled that the restrictions on basic rights of workers
should be kept to a necessary minimum, that the imposition of criminal sanc-
tions should be especially limited, and that the provision at issue exceeded this
⁶⁷ Judgment of the Supreme Court, 22 April 1984, Minshū 41-3-408 (Forestry Law case).
⁶⁸ Judgment of the Supreme Court, 30 April 1975, Minshū 29-4-572.
⁶⁹ Judgment of the Supreme Court, 15 December 1992, Minshū 46-9-2829.
limit and was thus unconstitutional.⁷⁰ This judgment was followed by two judg-
ments of the Supreme Court which took a similar approach. However, in 1973,
when an identical case reached the Supreme Court, the Court explicitly reversed
its previous judgment, and found that the rights of the workers should be limited
by taking into account ‘public welfare’. A change in the composition of the Bench
between the dates of these two judgments may have affected the latter judgment,
which was reached by an eight to seven vote.⁷¹
In some cases, the Supreme Court seemed to be insensitive to the protection of
individual rights such as in the case regarding the unequal treatment of illegitimate
children in inheritance law.
On the other hand, in recent years, there have been some areas in which
the Supreme Court has been fairly active in upholding the Constitution. The
inequality of the value of votes is an example. There were two judgments which
found a provision of the Public Election Law to be unconstitutional. Also, there
were some landmark judgments, including the Ehime Tamagushi case regarding
the separation of the State and religion cited above, where the Supreme Court
found an act of the prefectural governor to be unconstitutional. The most recent
judgment regarding the Nationality Law is another example.
12. International Treaties and Human Rights
Japan has ratified the International Covenant on Civil and Political Rights, but
with a few reservations. Japan is not bound by Article 8, paragraph 1(d), which
provides for workers’ rights to industrial action. The reservation is due to restriction
of such rights on certain categories of government employees.
Although the Covenant was ratified and promulgated, it is rarely used in
court as a basis for actions to protect human rights in Japan. This may be due
to the extensive and open-ended list of fundamental rights provided by the
Constitution, which apparently makes it unnecessary to resort to the Covenant.
However, the Covenant was referred to in court in a case concerning the Aliens
Registration Law, requiring foreigners to have their fingerprints taken when
their registration is renewed. The plaintiff, a resident of Korean origin, claimed
that this requirement was against the equal treatment clause of the Constitution
and the International Covenant on Human Rights. He argued that this con-
stituted ‘degrading treatment’, and thus was prohibited by the Covenant. The
High Court ruled that the Covenant was directly applicable, but did not accept
the plaintiff ’s argument.⁷² The Supreme Court acknowledged that Article 13 of
the Constitution included a right not to be forced to have fingerprints taken,
⁷⁰ Zentei-Chūyū case, supra. ⁷¹ Sarafutsu case, supra.

⁷² Judgment of Tokyo High Court, 25 August 1986, Hanji 1208–66.
but found the fingerprinting under the Aliens Registration Law to be sufficiently
reasonable and necessary.⁷³
The 1992 amendment abolished the fingerprinting of aliens with permanent
resident status. However, due to the rise of terrorism, fingerprinting was intro-
duced for all foreigners entering Japan.
The Covenant was also referred to in a case involving the right to a pension
for the handicapped of a resident Korean. The plaintiff argued that a provision
of the relevant law was against the Covenant, and therefore void. The Supreme
Court denied that the Covenant granted specific rights to individuals directly
and immediately.⁷⁴
Japan has ratified the International Convention on the All Forms of Racial
Discrimination; the Convention on All Forms of Discrimination Against
Women; the Convention on the Rights of the Child; the Convention Against
Torture, and Other Cruel, Inhuman, or Degrading Treatment or Punishment;
and the Convention Relating to the Status of Refugees.
⁷³ Judgment of the Supreme Court, 15 December 1995, Keishū 49-10-842.

⁷⁴ Judgment of the Supreme Court, 2 March 1989, Hanji 1363–68 (Shiomi case).
6
General Rules and Institutions
of Private Law
1. General
(1) The Civil Code and the Commercial Code

The Civil Code and the Commercial Code are the two pillars of Japanese private
law. Both codes were enacted in the late 1890s, and are of European origin. The
Civil Code had remained unchanged for many years except for the part on Family
and Succession. However, in the 2000s there were major amendments, including
the modernisation of the wordings of the Code and amendments in relation to
juridical persons. In 2005, the new Company Law was enacted, and the entire
company law part of the Civil Code was separated from the Commercial Code.
The Japanese Civil Code is a comprehensive Code which covers property law,
the law of obligations including contract law, tort law, family law, and the law of
succession. The Civil Code is divided into five Books. Book One is the General
Part which provides for the basic rules and institutions of civil law. These include
the civil law capacity of natural and juridical persons, juristic acts, and agency.
Book Two is entitled Real Rights and covers property and real security rights.
Book Three is the Law of Obligations. Tort is considered to be one of the sources
from which an obligation emerges together with unjust enrichment, and is there-
fore included in this part along with contract law. Book Four deals with family
relations, and Book Five covers inheritance.
The present Civil Code was enacted in 1896. While Books One to Three have
not been substantially amended since enactment, Books Four and Five, which
deal with Family Law and Inheritance Law respectively, were almost totally
amended after the Second World War to democratise family relationships and
ensure gender equality.
The first attempt to draft a Civil Code began soon after the fall of the Tokugawa
Shogunate in 1867 under the initiative of the Minister of Justice, Shinpei Etoh.
In 1870, a commission for the preparation of the Civil Code was formed and the
work of translating the French Code Civil with the assistance of a French adviser
began. The initial intention of the commission was to transplant the French Code
Civil into Japan as soon as possible. The draft which came out in 1878 was almost

114 The Civil Code—The Cornerstone of Private Law
a complete copy of the French Code. The translation was very poor in quality
and, what was more, had not paid due attention to the issue of transplanting the
French Code to a very different soil—pre-industrial Japan.
The government soon realised this problem and decided to prepare a Code
based upon European legal principles, but which was also ‘practical and
appropriate’.¹ Gustave Boissonnade was invited as a government adviser from
the University of Grenoble, and was commissioned to undertake this formid-
able task. Most of the draft, except for family and inheritance, was worked out
primarily by Boissonnade on the basis of the French Code Civil, and to a certain
extent German law, although some innovations were added by him. Japanese
members of the drafting committee had studied French law. Simultaneously
with the drafting of the Civil Code, the Commercial Code was being drafted—
although this time the leading role was given to a German adviser. The draft Civil
Code was discussed in the Senate and the Privy Council. The parts on property,
the acquisition of property, obligation, securities, and evidence were promulgated
in 1890.²
This Code—referred to in Japan as the ‘old Civil Code’—adopted the system
of the French Code, although in some provisions the influence of Italian, Belgian,
and Dutch Codes can be seen. Although the parts on family law and inheritance
were prepared by Japanese specialists, these were also inspired by the European
concept of a family based upon the equality of husband and wife, rather than that
of the traditional Japanese family dominated by the male head of the family.
This Code was subject to a barrage of criticism from various quarters. It was true
that the Code, being the first major legislative work by the Japanese, had short-
comings and ambiguities. It was not surprising that the Code was criticised on
these technical points. However, the criticism was more deeply rooted. First, the
Code was claimed to have been drafted almost entirely on the basis of French law
and did not pay due attention to other jurisdictions, such as English or German
law. This led to factional criticism from lawyers trained in German or English
Law. This rivalry between French specialists and German and English specialists
was not merely a struggle for hegemony. The French specialists had been inspired
by the theory of natural law, while German and English specialists had studied
historical jurisprudence. The former acknowledged the universal applicability of
legal principles, while the latter emphasised the historical and social environment
within which a particular legal system had developed. Therefore, the latter were
sceptical of the possibility of transplanting the French Code into Japan.
The opponents of the Code were also associated with those who were against
rapid modernisation and who stressed that the traditional virtues of Japan should
¹ For the influence of French law on the Japanese Code, see E. Hoshino, Minpō-Ronshū (Treatise
on Civil Law), vol. 6 (Tokyo, 1980), pp. 90–149. Translated into English in H. Tanaka, The Japanese
Legal System (Tokyo, 1976), pp. 229–235.
² See R. Frank, ‘The General Part’ in W. Röhl, History of Law in Japan Since 1868 (Leiden,
2005), p.166ff.
General Rules and Institutions of Private Law 115
not be replaced by a Christian ideology and European individualism. The family

law and succession parts of the Code especially were anathema to them. In an
opposition tract published at the time, it was pointed out that the Civil Code
destroyed traditional morals and diminished the role of the State. Some people
even asserted that the concept of natural rights was against the Constitution.
The criticism was primarily concentrated on the family law part. For example,
the Code provided that the father exercised parental rights. If the father died, the
mother was to take over those rights. This arrangement was criticised for being
against Japanese tradition, because in such cases traditionally a guardian was
always appointed.³
After a long and fierce debate, the Imperial Diet decided in 1892 to postpone
the implementation of the Code, as well as the Commercial Code. Although for-
mally the Diet merely decided to amend the Code, in fact the Government set up
another commission and instructed it to draft another Code. This Code, eventu-
ally adopted in 1898, is the present Civil Code. It should be noted that this was
adopted two years earlier than the German Bürgerliches Gesetzbuch (BGB) and
nine years earlier than the Swiss Civil Code.
The new Civil Code has long been considered to be based upon German law. It
is true that the Code was strongly influenced by the second draft of the German
BGB and the Saxonian Civil Code. The Code was organised on Pandekten lines
starting with the General Part which is to be applied to the rest of the Code,
followed by Property and Securities Rights and the Law on Obligations. There
are many provisions resembling the German BGB. For example, the concept of
juristic acts (Geschäftshandlungen/Rechtsgeschäft) evidently came from Germany.
Taking into account that the new Code was enacted after the previous Code
had been scrapped for its strong French influence, it was not surprising that
the new Code was regarded as a rehash of the German Code. At that time,
a German commentator pointed out that when the Code was enacted it was
almost entirely based upon German law and was much clearer and simpler than
the previous Code. ‘It does not look like a translation (as was the case with the
previous Code), but can be read as an original work.’⁴ Because of the belief that
the new Code was based on German law, Japanese scholars and lawyers have
worked hard to digest German civil law theories. The most common destin-
ation of Japanese academics studying abroad was Germany, especially before the
Second World War.
However, contemporary research shows that the influence of French law was
still present in the new Code. In order to enact a new Code in a short time-
span, the drafters had to rely on the abortive previous Code. Many provisions of
the old Code have been inherited by the new. For example, the provision which
³ T. Hoshino, Minpōten Ronsō-shi (The History of the Debates Concerning the Civil Code) (Tokyo,
1942), p. 234.
⁴ L. Lönholm, Das Bürgerliche Gesetzbuch von Japan, vol. I (Tokyo, 1896), iii–iv.
requires registration of title in order to claim a property right over immovable
property against a third party in the new Code can be found in the previous
Code. Incidentally, in German law registration is a requirement for the transfer
of immovables to take effect, while in French law the transaction is valid with-
out registration, although the parties may not claim their rights against a third
party without registration. In this respect the present Code has clearly adopted
the French approach.⁵
Thus, while maintaining the facade of being strongly influenced by German
law, the legislature at that time kept certain parts of the previous Code that
had been influenced by the French Code. It is more correct to say that the
drafters intended to produce an ideal system by taking the best of the German
and French Codes. It should be added that some of the civil law doctrines and
institutions came from sources other than French or German law. For instance,
the doctrine of ultra vires came originally from English law, but probably via
French law.⁶
Some laws supplementary to the Civil Code were enacted at the end of the
last century. These include the Law on the Registration of Real Property (1899)
and the Law on Deposits (1899).⁷ Other laws, such as the Law on the Hypothec
of Factories and laws relating to the security over enterprises and some mov-
able property, including cars and ships, were adopted later as the economy
developed.⁸
The by-product of modernisation was the emergence of socially deprived
people, primarily workers and tenant farmers. In order to protect those who were
in socially weak positions, laws were enacted to modify the provisions of the Civil
Code. Thus, the Law on the Protection of Buildings (1907), the Law on the Lease
of Houses (1921), and the Law on the Lease of Land (1921) were enacted.⁹ In
1991 these three were merged into one new law—the Law on Lease of Land and
Houses.¹⁰
In recent years, with increased risks accompanying advances in technology,
some new laws in the field of tort law have been enacted. These include the Law
on Compensation for Nuclear Damage, which provides for strict liability (1961)
and the Law on the Compensation of Losses caused by Pollution (1971), which
provides for a sophisticated mechanism of compensating victims of pollution.¹¹
The Law on Compensation for Losses arising from Car Accidents was enacted in
1955 in order to cope with growing number of traffic accidents.¹²
5
E. Hoshino, supra, p. 99. See also S. Koyanagi, ‘Minpō-ten no Tanjyō (The Emergence of the
Civil Code)’, in E. Hoshino and T. Hironaka (eds), Minpō-ten no Hyakunen (Centenary of the Civil
Code), vol. 1 (Tokyo, 1999), p. 3ff.
6
See the chronological table in K. Shinomiya and Y. Nomi, Minpō-Sōsoku (The General Part of
the Civil Code), 7th edn (Tokyo, 2006), p. 8.
7 8
Laws No. 15 and 24, 1899. Laws No. 54, 1905; No. 106, 1958; and No. 187, 1951.
9
Laws No. 40, 1909 and No. 49 and 50, 1922. ¹⁰ Law No. 90, 1991.
¹¹ Law No. 111, 1973. ¹² Law No. 97, 1955.
Some developments could be seen in consumer protection. In 1994, the Product

Liability Law was enacted.¹³ This was followed by the Consumer Contract Law
in 2000.¹⁴
In 2006, a major reform of the system of juristic persons took place. This part
of the Code was substantially amended and a set of new laws including the Law
on General Associations and Foundations and the Law on Certification of Public
Interest Associations and Foundations were enacted.¹⁵
(2) The Commercial Code

The present Commercial Code is divided into the General Part, Commercial
Transactions, and Merchant Shipping and Insurance.¹⁶ There was a part on
company law, but this part has been separated from the Commercial Code by
the enactment of the Company Law in 2005 (see Chapter 11). The Commercial
Code is supplemented by various laws such as the Law on Cheques, the Law on
Bills, and the Law on Commercial Registration.¹⁷
The first Commercial Code of Japan was promulgated in 1890. It was based
upon a draft prepared by a German adviser, Herman Roesler, who consulted
German, French, and English law in the course of its preparation. The compos-
ition of the Code was similar to that of the French Commercial Code of 1807,
although in substance it could be described as a blend of German and French
law. However, the Code was caught in a crossfire of criticism together with the
Civil Code, and it was some years before it took effect. A revised Code, still
in effect, was finally adopted in 1899. This was primarily modelled after the
German Commercial Code (Handelsgesetzbuch) of 1897, but with some French
influence.¹⁸
The Code has undergone some major changes since its enactment. Japan
ratified the Geneva Conventions on the Unification of the Law of Bills and the
Law of Cheques in 1930 and 1931 respectively, which resulted in the separ-
ation of the part of the Commercial Code on bills and cheques from the rest of
the Code.
(3) The relationship between the two codes

The provisions of the Commercial Code are special rules in contrast to the general
law of the Civil Code, and therefore the former takes priority whenever provisions
of both codes apply. In the absence of relevant provisions in the Commercial
¹³ Law No. 85, 1994. ¹⁴ Law No. 61, 2000. ¹⁵ Laws No. 48 and 49, 2006,
¹⁶ Law No. 48, 1899. ¹⁷ Laws No. 57, 1933; No. 20, 1932; and No. 125, 1963.
¹⁸ F. Takakura, ‘Shōhō-ten no Tanjō (The Emergence of the Commercial Code)’, Jurist, 1999,
No. 1155, pp. 5–15.
Code, commercial custom is first applied, and only when there is no such custom
is the Civil Code applied (Art. 1, Commercial Code).
Contract law serves as an example of the order of application of these codes.
Contract law provisions are found in both codes. The second chapter of Book
Three of the Civil Code, following the first chapter on the General Rules of
the Law of Obligation, deals with contracts. This chapter is divided into a gen-
eral part and provisions on individual contracts including contracts of sale and
loan, and leases. Furthermore, since contracts are juristic acts, provisions in the
General Part (Book One) of the Civil Code on juristic acts apply to contracts.
Thus, a contract which is an outcome of a declaration of will can be null and
void or voidable on various grounds, such as fraud, mistake, duress etc., as pro-
vided in the General Part. Agency is also covered in the General Part. Book Three
of the Commercial Code deals with commercial transactions. There is a general
part, followed by provisions on typical contracts such as sale, accounts current,
anonymous associations, etc.
The Commercial Code provides that certain transactions are commercial
per se. These include transactions whose purpose is the acquisition for value of
movables, immovables, or securities with the intention of transferring them for
profit, or the transfer of movables, immovables, or securities so acquired (Art. 501).
Then there are transactions which are commercial if effected as a business. These
include transactions relating to manufacture or processing done for other per-
sons as well as money-changing and other banking transactions and insurance
(Art. 502). In addition, there are incidental commercial transactions which are
effected by a merchant for his business (Art. 503). A merchant is defined in the
Code as a person who, on his own behalf, effects commercial transactions by way
of business (Art. 4, para. 1). Thus, while contracts of sale are covered by both
codes, provisions of the Commercial Code have priority insofar as the contract
falls within the category of commercial transactions.
2. General Principles and Basic Rules
(1) Civil law rights and public welfare

It is one of the characteristics of the German Pandekten system that general
principles and basic rules are singled out and put at the beginning of the Code.¹⁹
The Japanese Civil Code is no exception; the General Part of the Code sets out
these principles and rules. They are applicable not only to civil law transactions,
but also to commercial transactions. The General Part begins with a general
provision on the exercise of private rights.
¹⁹ N. Horn, H. Kötz, and H. G. Leser, German Private and Commercial Law (translated by
T. Weir) (Oxford, 1982), pp. 66–67.
The Civil Code provides as follows:

Private rights shall conform with public welfare. The exercise of rights and the perform-
ance of obligations shall be effected in a fair way and in good faith. The abuse of rights is
not permitted. (Art. 1, para. 1)
This provision was added to the Civil Code after the promulgation of the present
Constitution. The first paragraph coincides with the provision of the Constitution
which states that the contents of property rights are to be regulated by law in
accordance with public welfare (Art. 29, para. 2). This provision symbolises the
rejection of the sanctity and absolute inviolability of property rights, but is seldom
applied in practice.
One of the rare cases where this provision was applied involved the claim of a
landowner who let his land for use as a US military base. When the lease expired,
the landowner claimed that his property should be returned to him. The Supreme
Court ruled that the loss incurred by the State if the land was returned to the
owner would be bigger than the benefit receivable by the owner, and therefore the
claim was contrary to public welfare.²⁰
The second and third paragraphs, on abuse of rights and good faith and fair
dealing respectively in contrast, are often referred to in court judgments where an
equitable solution cannot be reached by relying on specific provisions of the Civil
Code. It should be added that the provision on public order and good morals in
the General Part (Art. 90) serves a similar purpose.
(2) The doctrine of good faith and fair dealing

The doctrine of good faith and fair dealing (shingi seijitsu) had long been recog-
nised by the courts before it was formally incorporated into the Civil Code after
the Second World War. French and German Codes have similar provisions.²¹
This doctrine is applied in various circumstances, including cases which in the
UK would be covered by collateral estoppels.
The court resorted to this doctrine when there was a need to pierce the cor-
porate veil. In one case the lessee of a piece of land—a company—was sued by
the lessor for failing to pay the rent. The president of this company established
another company with a similar name in order to avoid such claims. He contested
a claim in the court. Then, after a year, while the case was still pending, this per-
son argued that his company was a different entity from the one which had been
sued, and that the plaintiff should have sued the new company. The court rejected
this argument as being contrary to good faith and fair dealing.²²
²⁰ Judgment of the Supreme Court, 9 March 1965, Minshū 19-2-233.

²¹ Horn et al., supra, pp. 86–87.
²² Judgment of the Supreme Court, 26 October 1973, Minshū 27-9-1240.
The court also applied this doctrine in order to protect the lessee of a house
or land from eviction. According to the provisions of the Civil Code, the lessor
is entitled to rescind the contract of a lease when the lessee sublets the property,
or assigns his interest to a third party without the consent of the lessor (Art.
612). The contract can also be rescinded when the lessee fails to pay the rent.
However, the court restricts rescission of the contract by the lessor to cases
where the act of the lessee amounts to a destruction of mutual trust. In one
case, the court refused to terminate a lease on the ground of this doctrine; the
court pointed out that the amount of arrears was small and that the lessee was
entitled to a claim for repair, therefore the lessee could not be regarded as hav-
ing acted against the doctrine of good faith and fair dealing.²³ In a similar vein,
the court developed the doctrine of unfair dismissal out of this provision (see
Chapter 16).
Sometimes a claim that a certain right has been extinguished by prescrip-
tion is turned down by the courts on the ground that it is against good faith
and fair dealing. A widow who had obtained a piece of land from her eldest
son (the only heir under pre-war family law) failed to have it registered in her
own name. She was not on good terms with the eldest son and raised her other
children by farming this piece of land. Some 20 years later she asked the eld-
est son to cooperate in registering the property in her name. He refused, and
as a defence in court, claimed that her right to demand cooperation in regis-
tration had already been extinguished by prescription. The Supreme Court
found that this defence was against fairness and good faith.²⁴ In a recent
case, the court found that the State was not entitled to invoke a prescription
in relation to a Japanese national who was a victim of the atomic bomb in
Hiroshima and who later emigrated to Brazil, for his claim for a benefit under
the special assistance law. Th is was based upon the doctrine of good faith and
fair dealing.²⁵
Since the 1960s this doctrine has come to be utilised in an even broader
manner.²⁶ Culpa in contrahendo has been acknowledged on the basis of this pro-
vision. In some cases, based on this doctrine, the court acknowledged the duty
of a bank official and a real estate agent respectively to make certain enquiries
before effecting a transaction.²⁷ In other cases, a party in the process of negoti-
ation was found to owe a certain duty to the other party involved. In other cases
the courts have ruled that rescission or refusal to renew a continuous contract
under certain circumstances ran counter to this doctrine (for culpa in contrahendo,
see Chapter 7).
²³ Judgment of the Supreme Court, 28 July 1964, Minshū 18-6-1220.

²⁴ Judgment of the Supreme Court, 25 May 1976, Minshū 30-4-554.
²⁵ Judgment of the Supreme Court, 6 February 2007, Minshu 61-1-122.
²⁶ T. Uchida, ‘Gendai keiyaku-hō no aratana tenkai to ippan-jōkō (New Development of
Modern Contract Law and General Clauses) (3)’, New Business Law, No. 516, pp. 22–28.
²⁷ Judgment of the Supreme Court, 26 May 1961, Minshū 5-5-1440.
(3) Abuse of rights

While the doctrine of good faith and fair dealing is used in cases where a particu-
lar relationship—such as a contract—exists between the parties, the prohibition
against the abuse of rights is generally used in cases where there is no such rela-
tionship. As was the case with the doctrine of good faith and fair dealing, this
doctrine had also been acknowledged by the court before it was incorporated into
the Civil Code. The exercise of one’s right can be regarded as abusive if it unrea-
sonably infringes another’s rights. No intention to harm on the part of the holder
of the right is needed.
In a leading case, a pipeline came from a hot spring and crossed a small piece
of land which belonged to another person. The plaintiff purchased this piece of
land and required the owner of the pipeline to purchase it at a high price. When
this was not accepted, he brought an action against the owner of the pipeline,
demanding that the pipeline be removed. The court rejected the claim as an abuse
of rights.²⁸
Another case involved the trademark registration of Popeye the Sailorman.
The trademark in question was composed of the name Popeye and a figure of
this cartoon character. Someone then acquired the right to use the character
as a trademark from the holder of the copyright on their products. The person
who had registered the trademark in Japan sued this person for infringement
of a registered trademark. The Supreme Court found this also to be an abuse of
rights.²⁹
This provision is sometimes used in cases of public nuisance. The construc-
tion of a two-storey building was found to be an abuse of rights, since it seriously
blocked sunshine and ventilation for an adjacent house. In this case, the building
did not meet the standard required by the Law on Architectural Standards.³⁰
However, such cases can be dealt with under tort law or property law, and the
reasonableness of resorting to this provision is being questioned.
3. Legal Capacity
(1) Physical persons

The first chapter of Book One of the Civil Code deals with the capacity of
physical and juridical persons. The term ‘legal capacity’ was introduced from
Germany (Rechtsfähigkeit). It denotes the capacity to be a subject of rights
and duties and is distinguished from the capacity to act (Handlungsfähigkeit),
²⁸ Judgment of the Supreme Tribunal, 5 October 1935, Minshū 14–1965 (Unazuki Hotspring
case).
²⁹ Judgment of the Supreme Court, 20 July 1990, Minshū 44-5-876.
³⁰ Judgment of the Supreme Court, 27 June 1972, Minshū 26-5-1067.
meaning the capacity to obtain rights, assume duties, and incur liabilities
via juristic acts. All physical persons have legal capacity without exception.
They are entitled to hold private rights from the moment of their birth (Arts
1–3). These rights also extend to a child in the womb in relation to tort and
inheritance. Thus, an unborn child is regarded as though it had been born and
is entitled to claim for damages (Art. 721). The same applies to inheritance
(Art. 886).
A physical person has legal capacity until his or her death. When several people
have died and the order of death is not known, it is presumed that they have died
simultaneously (Art. 32-3). When it is not known whether a person is dead or
alive for seven years, the family court may declare this person to be missing (Art. 30,
para. 1). In cases of war or shipwreck, a person can be declared missing one year
after the incident (Art. 32, para. 2).
Foreign citizens are also entitled to be subjects of private rights insofar as such
entitlement is not prohibited by law or ordinance (Art. 2). In some cases, for
instance, in government liability, instead of equal treatment of Japanese and for-
eign citizens, the principle of reciprocity is applicable. The Law on Compensation
by the State provides that when the victim is a foreign citizen, the law applies only
when the law of his home country provides for equivalent treatment (Art. 6).
There are also laws which restrict the rights of foreign citizens to obtain specific
rights or operate certain businesses in one way or another. Recently, acquisition
of shares of a power utility by a foreign investment fund was blocked under the
Foreign Exchange and Foreign Trade Law.³¹ A rather obsolete Law on the Rights
of Foreigners on Land provides for reciprocity and enables the government to
restrict acquisition of land in areas which are needed for national defence (Art. 4,
para. 1).³²
Not every person with legal capacity can act on his own and acquire entitle-
ment and assume duties. The Civil Code previously provided for ‘incompe-
tents’ and ‘quasi-incompetents’. Until 1947 wives were considered to be legally
incompetent. In 1979, the provision which categorised blind, deaf, or dumb
persons as quasi-incompetents was repealed.
The system of incompetency and quasi-incompetency went through com-
prehensive review, particularly from the viewpoint of reinforcing the right to
self-determination on the part of those who are to be protected and their ‘normal-
isation’ in the late 1990s. As a result of this review, the system of incompetence
was substantially changed and a new system of adult guardianship (seinen-kōken
seido) was introduced.³³
Under the new system, the concept of ‘incompetent’ was abolished. Those
whose capacity is limited are categorised as persons with limited capacity. These
include minors, adults under guardianship, and persons under curatorship. The
family court may adjudicate on the commencement of guardianship in relation to
³¹ Nikkei, 13 May 2008. ³² Law No. 42, 1925. ³³ Law No. 149, 1999.
those who are in a permanent state of being incapable of understanding reason as

a result of mental disturbance, upon application by the person themselves, their
spouse, a member of the family within the fourth rank, the public prosecutor,
etc. (Art. 7). As a result of the adjudication, a guardian for adults can be assigned
(Art. 8). Acts of the person under guardianship can be rescinded (Art. 9).
For those whose capacity for understanding reason is insufficient as a result
of mental disturbance, a curator can be assigned (Arts 11 and 12). Certain acts
of those who are under support, such as borrowing and guaranteeing, real estate
transactions, etc. require the consent of the curator (Art. 13, para. 1). Acts effected
without the consent of the curator where it was required can be rescinded (ibid.,
para. 4).
Minors have limited capacity to act. A person acquires majority at the age of
20, or by marriage (Arts 4 and 753). A minor is required to obtain the consent of
his legal representative to acquire entitlement or assume duties (Art. 5, para. 1).
Usually, those who have parental rights over a minor become the minor’s legal
representatives. Acts done without the consent of the legal representative can be
rescinded (ibid., para. 2).
Although there is no statutory provision to this effect, it is considered that
the act of a person who is incapable of understanding the meaning and effects of
his action is void. For instance, if a person who is suffering from serious mental
disease but who has not yet been declared incompetent by the court concludes a
contract, that contract is void.
(2) Juridical persons

As in other jurisdictions, juridical persons have legal capacity just as individuals—
physical persons—do. The Civil Code has recently undergone a major reform in
the 2000s.³⁴
The Civil Code provides for two types of juridical persons: associations and
foundations. An association is a group of individuals who come together to
achieve certain purposes. In contrast, a foundation is a set of properties endowed
for a certain purpose, and has no members.
This two-tiered system of associations and foundations emanates from
the German Civil Code, which distinguishes between Vereins and Stiftungen.
However, while German law divides Vereins into commercial and non-commercial
associations, the Japanese Civil Code used to divide associations into profit-
making associations and public interest associations. Profit-making associations
are companies and are governed by the Commercial Code (now Company Law).
The Civil Code left no room for non-profit associations that were not public-interest
³⁴ H. Nakata, ‘Ippan Shadan/Zaidan Hōjin-Hō no Gaiyō (An Outline of the Law on General
Associations and Foundations)’, Jurist, No. 1328, p. 2ff.
associations. Organisations such as social clubs and alumni associations were not
entitled to juridical personality.
Since associations and foundations under the Civil Code involved public
interest, in order to establish such organisations, approval of the relevant admin-
istrative agency was required. Some organisations refrained from applying for
juridical personality in order to avoid the cumbersome procedures, costs, and
supervision by the administrative agency. Although obtaining approval was dif-
ficult, subsequent control by the relevant ministry was lax. In the late 1970s,
in response to mounting criticism of such public interest juridical persons for
allegedly abusing their status and being involved in profit-making activities, the
supervisory power of administrative agencies was strengthened, but this was not
really effective.
In 2001, the Law on Intermediate Juridical Persons which enabled non-profit,
non-public interest juridical persons to be established was enacted. However, this
Law did not function well, and was repealed in the process of the further reform.
The reform which took place in 2006 involved the enactment of the Law on
General Associations and Foundations, and the Law on the Certification of Public
Interest Associations and Foundations. By virtue of these laws, associations and
foundations can now be set up without approval of the relevant administrative
agency, regardless of whether they involve public interest or not. Associations can
be set up by two or more persons via the preparation of the articles of association,
after which they must have it notarised, and must register (Arts 10, para. 1, 13,
and 22 of the Law on General Associations and Foundations). For foundations,
in addition to the preparation of the act of endowment and its notarisation, a
contribution of assets of three million yen or more is required (Arts 152, para. 1, 155,
157, 153, para. 2, and 163). There is no restriction as to the activities associations
may be involved in. Foundations do not necessarily have to be public interest
foundations as was previously the case.
In order to become a public interest association or a foundation, associations
and foundations need to be certified by the relevant administrative agency. The
certification can be revoked under certain grounds (Art. 29, paras 1 and 2 of the
Law on the Certification of Public Interest Juridical Persons). Unlike the previ-
ous system, it is the Prime Minister, or the local governor, who supervises these
organisations and revokes the certificate when necessary (Art. 3).
In reality, beefore the reform in 2006, public interest juridical persons estab-
lished on the basis of the Civil Code were relatively small in number—12,677
associations and 12,586 foundations in 2005—as compared to the number
of companies, which exceeds two million.³⁵ Since the Second World War a
number of separate laws have been enacted, for instance the Law on Religious
Organisations and the Law on Private Schools. These laws have special provisions
as to the procedure for establishing and organising these entities.
³⁵ <http://www.soumu.go.jp/s-news/2006/pdf/060815_1_2.pdf>.
Under certain circumstances, organisations without juridical personality

should be treated as juridical persons and have relevant provisions of the law
applied to them. As for the capacity to sue and to be sued, the Code of Civil
Procedure grants these organisations such status (Art. 29). It is considered appro-
priate to deny attachment of the assets of the organisation by the creditors of the
members when the assets of the organisation are effectively separated from those
of the members. In a similar way, there are organisations without juridical per-
sonality, whose creditors may attach only the assets of the organisation and not
the assets of the members. There was a case in which a director of an association,
which does not have juridical personality, abused his power, incurred debts, and
disappeared. The creditor sued the members of the association for repayment. A
lower court found that the liability of members should be limited to the amount
of the assets of the association and should not extend to their individual assets.
The Supreme Court upheld this judgment.³⁶
Since the procedure for establishing a public interest foundation is rather
cumbersome, trusts for public interest purposes governed by trust law have
begun to be used in recent years. The new Trust Business Law was enacted in
2004.³⁷
The Civil Code provides that a juridical person acquires entitlement and
assumes duties in accordance with laws and ordinances, and ‘within the scope
of its purposes’ as provided by the articles of association or the act of endowment
(Art. 34). Transactions which exceed the scope of purposes set out by the articles
of association are void. This provision has evidently been influenced by the doc-
trine of ultra vires. It may be relevant to public interest juridical persons, but in
relation to companies strict implementation of this provision could disadvantage
those who deal with juridical persons.
In cases involving companies, the courts tend to interpret the ‘purpose’ of the
articles of association broadly and to acknowledge the validity of transactions
which are contested to be ultra vires. In one celebrated case, a major steel company
made a donation to the ruling political party. A company shareholder brought an
action against the representative director of the company. The Supreme Court
repeated the precedents, in that ‘acts within the scope of purposes’ in the sense
of Article 43 includes not only the purposes explicitly stipulated in the articles of
association, but also acts needed directly or indirectly to achieve these purposes.
In this particular case, the court ruled that donations of a reasonable amount are
not ultra vires insofar as they are needed to fulfil the social role expected of the
company.³⁸
In comparison, in cases concerning public interest juridical persons, the courts
tend to interpret the scope of purposes narrowly. In one case, an agricultural
³⁶ Judgment of the Supreme Court, 9 October 1973, Minshū 27-9-1129.

³⁷ Law No. 154, 2004. Y. Nōmi, Shintaku-hō (Trust Law) (Tokyo, 2006).
³⁸ Judgment of the Supreme Court, 24 June 1970, Minshū 24-6-625 (Yawata Steel case).
cooperative extended a loan to a non-member which was not allowed by the art-
icles of association. The loan had nothing to do with the business of the coopera-
tive. The Supreme Court found this transaction to be outside the scope of the
cooperative’s business and therefore void.³⁹
The governance structure of general juridical persons is determined by the Law
on General Associations and Foundations. General associations are governed by
the general meeting of the members and one or more directors (Arts 35, para. 1
and 60, para. 1). They may establish a board of directors, involve an auditor or a
public accountant by the articles of association (Art. 60, para. 2). Directors, audi-
tors, or public accountants are liable to the company for neglect of duty (Art. 111,
para. 1). Juridical persons are liable for tortious acts by the directors and other
representatives in the course of their business (Art. 78).
General foundations have councillors, a council, directors, a board of directors,
and auditors (Art. 170, para. 1). The liability provisions regarding associations
apply to foundations as well (Arts 197 and 198).
In some cases a juridical person is established as a veil, or used as an instru-
ment to avoid attachment. In recent years a theory which denies juridical
personality to these entities has developed under the influence of similar devel-
opments in the United States and Germany. In Japan there are a number of
small companies limited by shares which are actually individual businesses. The
Supreme Court ruled that when the juridical personality is abused in order to
by-pass the law, or the juridical personality is merely a veil, the juridical person
status can be ignored by the creditor on the basis of the doctrine of good faith
and fair dealing. In this case, businessman A ran a shop for home appliances
which was incorporated as a company limited by shares (Company Y). The shop
premises were let by X. X wanted to evict A and Company Y from the property
and eventually X and A reached a settlement in court; A agreed to move out.
However, A failed to comply with the agreement, claiming that Company Y was
not a party to the settlement and that part of the premises used by the company
need not be returned to X. X sued Company Y. The Supreme Court ruled that
although Y was a company limited by shares, in reality it was nothing other
than A as an individual. Therefore the settlement reached between X and A in
court should be regarded as an act between X and Company Y, and was binding
on Y as well.⁴⁰
This judgment indicated that the corporate veil can be pierced in cases where
(i) juridical personality has no substance and is a sham, or (ii) juridical personality
is abused.
³⁹ Judgment of the Supreme Court, 26 April 1966, Minshū 20-4-849.

⁴⁰ Judgment of the Supreme Court, 17 February 1969, Minshū 23-2-511. K. Egashira, ‘Kigyō no
Hōjinkaku (Juridical Personality of Corporations)’, in A. Takeuchi and M. Tastuta (eds), Gendai
Kigyō-hō Kōza (Contemporary Corporate Law), vol. 2, Tokyo 1985, p. 57ff.
4. Juristic Acts
(1) The concept of juristic acts

The General Part of the Civil Code also provides for juristic acts. This term came
from the German term Rechtsgeschäft. It is a product of the German Pandekten
jurisprudence, which has a penchant for abstractism. The General Part of the
BGB has provisions concerning juristic acts, a concept formulated out of com-
mon characteristics of contracts, wills, acts of incorporation, and other legal
acts.⁴¹ The Japanese Code has followed this model.
A juristic act is defined as an act directed towards a specific legal effect, i.e. an
act aimed at obtaining, relinquishing, or otherwise altering a right, which can be
enforced through the judicial system. Legal relationships between the subjects of
law, as well as the subjects and objects of law, emerge as a result of a juristic act.
A typical juristic act is a contract, but it also covers unilateral acts such as gifts,
wills, and joint acts such as an act of incorporation.
As the renowned German lawyer Friedrich Carl von Savigny elaborated in his
Theory of Will, the core of the juristic act is the declaration of will, which is an
expression of the will of a person directed at a specific legal effect. Specific legal
effects result from the will of a person. This presupposes the principle of private
autonomy; where there is no freedom of will, there are no grounds for juristic acts
to have any legal consequences.
The relationship between a juristic act and a declaration of will has long been
an issue of controversy. In the early period Japanese lawyers did not distinguish
these two concepts. The later influence of German theories led to a distinction
being made between the two concepts. A declaration of will is an element—
indeed the core—of a juristic act, but it is not the juristic act itself. This is because
juristic acts require elements other than a mere declaration of will. Bilateral jur-
istic acts require two declarations of will to coincide, and are therefore more than
a declaration of will; there are also acts which require other elements, such as the
licence of an official body, to be effective. Thus, the juristic act is understood to be
a broader concept than that of the declaration of will.
(2) Juristic acts against public order and good morals

The Civil Code provides that juristic acts whose purpose is against public order or
good morals are null and void (Art. 90). Together with Article 1 which provides
for the doctrine of good faith and fair dealing, the Code gives the court broad
discretion in this general provision. The courts have been fairly active in applying
this provision in order to reach fair and equitable solutions.
⁴¹ O. Jauernig (ed.) Bürgerliches Gesetzbuch, Kommentar, Munich 2004, S. 40–43.

Classic examples are immoral contracts or contracts which infringe the integ-
rity of a person; they are null and void by virtue of this provision. In a case before
the Second World War, Y borrowed money from X and in return sent his daugh-
ter to work under X as a barmaid. Half of her salary was deducted in order to
repay her father’s debt. The daughter fled, and X claimed repayment from Y. The
Supreme Court found both the employment contract between the daughter and X,
and the loan contract between X and Y to be void on the ground of this provi-
sion.⁴² Also, a loan contract for gambling money is null and void if the creditor
was aware of the purpose of the loan.⁴³ In a recent case, an agreement between
an employee and a trade union which deprived the employee of the freedom to
withdraw was found to be against this provision.⁴⁴
Contracts concluded where one party is in a strong bargaining position and
which contain clauses excessively disadvantageous to the other can be null and
void on the basis of this provision. For example, a loan contract was concluded
in which the debtor had to transfer to the creditor a piece of land worth eight
times as much as the amount he had borrowed in case he failed to repay the debt
on time. The creditor had thus abused his dominant position over a person in
economic difficulty. The Supreme Court found this contract to be against public
order and good morals.⁴⁵
Juristic acts are required to comply with the law. The Code provides that the
parties may deviate from provisions of laws and ordinances, unless these pro-
visions concern public order, i.e. are mandatory provisions (Art. 91). Whether
a given provision is mandatory or optional is not always explicit in the Code.
Generally, Books Four and Five—Family Law and Inheritance, as well as Book
Two—Property Law—have more mandatory provisions than Book Three—the
Law on Obligations.
However, it should be noted that juristic acts which are against mandatory
provisions are not always null and void. This is especially significant in relation
to administrative law. Violations of the laws in this field do not necessarily make
an act void, although they may result in criminal or administrative penalties.
For instance, a person who sells goods without the necessary licence incurs an
administrative penalty, but the contract itself may still be found valid.⁴⁶
This problem is also discussed in relation to the Anti-Monopoly Law: whether
acts against the Anti-Monopoly Law are void under either the Civil or the
Commercial Code. In one case, the Supreme Court ruled that an act in violation
of the Anti-Monopoly Law is not necessarily null and void under the civil law.⁴⁷
⁴² Judgment of the Supreme Court, 7 October 1955, Minshū 9-11-1616.

⁴³ Judgment of the Supreme Court, 4 September 1986, Hanji 1215–47.
⁴⁴ Judgment of the Supreme Court, 2 February 2007, Minshū vol. 61, No. 1, p. 86.
⁴⁵ Judgment of the Supreme Court, 18 January 1963, Minshū 17-1-25.
⁴⁶ Judgment of the Supreme Court, 18 March 1960, Minshū 14-4-483.
⁴⁷ Judgment of the Supreme Court, 20 June 1977, Minshū 31-4-449.
In determining the validity of the transaction in question, whether the nulli-

fication of the transaction itself is needed for the achievement of the goal of the
mandatory provision, and whether the nullification results in unfairness between
the parties are taken into account.
Recently, there have been cases where the court found certain transactions
which were against the consumer protection laws to be null and void. In order
to achieve the goals set by laws such as the Anti-Monopoly Law or consumer
protection laws, which are designed to maintain appropriate order in the mar-
ket, it has become increasingly necessary to nullify transactions which are
against such laws. There is a view which suggests that a mere violation of a
mandatory provision does not necessarily make a transaction null and void, but
if the transaction is tantamount to a violation of public order, then the trans-
action is null and void by virtue of Art. 90. The proponents of this view inter-
pret public order rather broadly and maintain that cases such as violation of
Anti-Monopoly Law or consumer protection laws should be regarded as being
against public order.⁴⁸
(3) Defective declaration of will

It is the role of the court to interpret the will of the parties. More emphasis is placed
on the objective expression of the will as the other party would have understood it
rather than the internal will, because those who relied on the objective expression
should be protected. Normally, the intention of the declarant and his expressed
will coincide in order to bring about the intended legal effects. However, in some
cases there is a discrepancy between the two. For instance, a person may be under
duress or mistaken. These instances are denoted as defective declarations of will
(Willensmängel).
Following the model of the BGB, there are provisions dealing with the effects
of defective declarations of will. The Code endeavours to balance the interests of
the declarant, the recipient, and the third party.
The first category of such a defect is ‘mental reservation’ (geheimer Vorbehalt).
The Code provides that a juristic act should not be invalidated when a party
knowingly declares a will which does not coincide with his genuine will. This
does not apply when the other party was aware or should have been aware that
this was not the declarant’s genuine will (Art. 93), since in such cases there is no
need to protect the interest of the opposite party at the cost of the declarant. For
instance, a person who sold his property as a joke is nevertheless bound by his
words. However, if the opposite party was aware that this was a joke, or should
have been aware of this, the act is null and void.
⁴⁸ A. Omura, ‘Torihiki to kōjo (Transactions and Public Order)’, Jurist, No. 1023, pp. 85–86; No.
1025, pp. 68–70.
The second category of defects of will is fictitious declaration of will by col-
lusion (Scheingeschäft). A fictitious (or sham) juristic act made in collusion with
another party is null and void because the act does not coincide with the parties’
genuine intention. However, the interests of a third party who relied upon that
false declaration of will have to be protected. Therefore, the parties may not claim
that the act is void against a bona fide third party (Art. 94, para. 2). Such fictitious
acts are seen, for instance, when the parties intend to avoid attachment, when a
husband registers his property under his wife’s name in order to avoid attachment
from his creditors. It may happen that a person entrusted with property resells it
to a third party, thus abusing his position.
Let us take the case where X colludes with B and fictitiously ‘sells’ him a piece
of land. Between X and B the sale contract is null and void, because it does not
coincide with their genuine intention. B is not entitled to claim the property
against X. However, if B sold the land to a third party Y, who reasonably believed
that B was the genuine owner, X may not claim his rights against Y. After all,
X contributed to creating the impression that B was the owner and Y relied on it;
X must accept the outcome of his act.
The Supreme Court has extended the application of this provision to cases
where the protection of a bona fide party was necessary. For instance, in one case
A registered in his name a piece of land which belonged to his friend X. X soon
found this out, but left the registration unchanged. Some time afterwards A, who
had married X, sold the land to a bona fide third party Y without the permis-
sion of X. Although there was no explicit collusion of will between X and A, the
Supreme Court found that X could not claim her ownership against Y, since
she had left the registration unchanged and created the appearance that A was
the owner of the property.⁴⁹
The third instance of defective declaration of will is mistake (Irrtum). A juris-
tic act is null and void when there is a mistake in any essential element. However,
when there is gross negligence on the part of the declarant, he is not entitled to
claim that the act is null and void (Art. 95). The court distinguishes between mis-
takes as to element and mistakes as to motive. An example of the latter is a case
where a person purchases a piece of land, believing that there is a hot spring there.
While the former is considered to be void, the latter does not affect the validity of
the act, unless the motive is explicitly made known to the other party.⁵⁰
However, recent academic opinion is that the demarcation between mistakes
as to element and mistakes as to motive is not always clear-cut, and that even
when the motive is not explicitly stated, there are cases where the transaction
should be declared void.⁵¹
⁴⁹ Judgment of the Supreme Court, 22 September 1970, Minshū 24-10-1424.

⁵⁰ Judgment of the Supreme Court, 26 November 1954, Minshū 8-11-2087.
⁵¹ For different views on this matter, see Z. Kitagawa, Minpō Kōyō (Lectures on Civil Law)
CD-Rom version, Part 1, pp. 101–110.
Finally, juristic acts made by fraudulent means or under duress can be

rescinded. While the declarant may claim rescission of an act made under duress
against a third person, he may not do so against a bona fide third party in cases of
acts made by fraudulent means (Art. 96, paras 1 and 2).
(4) Invalidity of juristic acts

The Civil Code distinguishes between acts that are null and void on one hand,
and those that are merely voidable—and which can be rescinded—on the other.
Acts which are null and void have no legal effect whatsoever, even without a
claim to that effect, and cannot be made valid by ratification (Art. 119). Voidable
acts are valid until an entitled person rescinds the act. On rescission, the act is
regarded as having been void ab initio (Art. 121). When the act is null and void,
one can claim its nullity at any time, whereas when the act is merely voidable, the
right of rescission lapses five years after ratification became possible or twenty
years after the act (Art. 126).
A typical act which is null and void is an act against public order and good
morals (Art. 90). The act is null and void independent of the will of the declarant
or others. Acts of mental reservation, fictitious declarations, and mistakes are
also null and void. In contrast, acts made by fraudulent means or under duress
are merely voidable. However, as mentioned above, the extent to which juristic
acts are void provided by Articles 93 to 95 is limited in one way or another. In
the case of mental reservation, it cannot be claimed against a bona fide third
party. Theoretically, any person may claim that an act is null and void; in a case
of mistake, however, although the act is supposed to be null and void, there is an
established precedent that no one may claim that the act is void if the declarant
who made the mistake does not intend to so claim.⁵²
Rescission or ratification is effected by a unilateral act. If a person entitled to
rescind a juristic act performs the act fully or partly, demands performance from
the other party, renews the act, or furnishes a surety, he is deemed to have ratified
the voidable act (Art. 125).
5. Agency
Juristic acts can be effected by an agent. When an agent is authorised by a prin-

cipal to effect juristic acts on his behalf with a third party, the legal effect of such
acts are attributed to the principal. Basic rules concerning agency are provided in
the General Part of the Civil Code. The Commercial Code also has provisions on
commercial agency.
⁵² Judgment of the Supreme Court, 10 September 1965, Minshū 19-6-1512.

Agents can be divided into two types: agents created by agreement and agents
by statute. In the case of agents by statute, agency arises directly from provisions
of the law. For instance, minors are represented by a legal representative (Art. 5).
Parents are expected to act on behalf of minors (Art. 818). Curators are appointed
in order to represent those without capacity to act, including minors for whom no
adult has parental rights (Art. 838). The Code also provides for the administrator
of the estate (Art. 952), the executor of a will (Art. 1015), and the administrator
of a property of an absentee. Administrators are appointed by the family court
(Art. 25). In addition, juridical persons are represented by a representative.
As for agency created by agreement, the relationship between the principal
and the agent varies. Agency arises from mandate or employment contracts, work
contracts, and partnership contracts. These contracts are regulated in Book Three
of the Code—the Part on the Law of Obligations. No specific form is required to
create an agency. A power of attorney is often issued, but this is not mandatory.
An agent need not have full legal capacity (Art. 102).
Agents created by agreement may not appoint a sub-agent unless the princi-
pal has given permission or an unavoidable reason exists (Art. 104). If an agent
appoints a sub-agent in accordance with these requirements, he is responsible
to the principal as to the selection of, and supervision over, the sub-agent. If the
agent appoints a sub-agent upon instructions from the principal, the agent is not
responsible for the wrongdoing of the sub-agent, unless he knew that the sub-
agent was unfit or untrustworthy but failed to inform the principal or remove the
sub-agent (Art. 105). In contrast, statutory agents have broader power to appoint
sub-agents, but are still responsible for their acts (Art. 106).
Agency comes to an end by agreement between the principal and the agent. In
addition, agency is terminated by the death of the principal. Death, total loss of
capacity, or bankruptcy on the part of the agent also end the relationship (Art.
111). However, the death of the principal does not terminate the power of the
agent in commercial transactions (Commercial Code, Art. 506).
In order to avoid conflict of interests, an agent is not allowed to represent a
person in a transaction in which he is the other party. For instance, a seller’s agent
may not conclude on the seller’s behalf a sale contract in which he is the buyer. An
agent may not act for both parties in the same transaction (Art. 108). A similar
provision exists for representatives of a juridical person. Where there is a conflict
of interest, a special representative has to be appointed (Art. 57).
An agent is required to disclose that he is acting on behalf of the principal
(Art. 99, para. 1). If the agent fails to do so, the transaction has no effect upon
the principal, and the agent is deemed to have acted on his own behalf. However,
this does not apply when the opposite party was or should have been aware that
the agent was acting on behalf of the principal (Art. 100). In this regard the
Commercial Code provides an exception for commercial transactions. In such
transactions, even when the agent failed to reveal that he was acting on behalf of
a principal, the act is binding on the principal. If the opposite party was not aware
that the agent was acting for the principal, he may also require performance by
the agent (Art. 504).
Where the validity of a juristic act is affected because of defective declarations
of will, such defects are to be determined by reference to the agent’s position, not
the principal’s (Art. 101, para. 1). For instance, when principal A purchases a
painting through his agent B, who knew that the painting was fake, A may not
claim that he had acted out of mistake, even when he had not known that the
painting was fake.
In cases of agency by agreement, the scope of the agent’s authority is defined
by the agreement between the principal and the agent. In order to facilitate busi-
ness, the Commercial Code provides that the agent in commercial transactions
may act outside the mandate, provided that it is not against the substance of the
mandate (Art. 505).
If a person without authority acts ostensibly on behalf of the principal then,
as a rule, the act has no effect on the principal. However, the scope of authority
given to the agent is not always apparent from the outside. It is often not even pre-
cisely defined by the principal. This may confuse the third party, and therefore
a safeguard to protect those who mistakenly believed that an agent was acting
within his authority is needed. This can be justified by the idea that the princi-
pal has contributed in one way or another to the creation of such an appearance.
Therefore, under certain circumstances the principal may be bound by the act of
his agent, although the agent did not have the power.
First, when a person declares to others that he has granted another person
authority to act on his behalf, he is liable for the acts of that person (Art. 109).
Therefore, once the principal has made known to others that he has given author-
ity to another person, he may not deny the effect of the act done by the agent,
insofar as it is within the scope of authority ostensibly granted to the agent. For
example, if Y allows A to use his name or seal in a transaction without intending
to allow him to act on his behalf, Y may nevertheless be bound by A’s actions
against the third party X. The court applied this provision in a case where A
issued promissory notes in the name of Y, using Y’s seal. X erroneously believed
that A was authorised by Y to do so. The Supreme Court found the promissory
notes to be valid on the ground of Article 109.⁵³
In another case, the Tokyo District Court was held liable for a transaction
concluded by an organisation. This organisation was an association of court
employees which had an office in the court building and used the name of the
‘welfare department’ of the district court. The plaintiff had sold stationery to
this organisation, but the latter failed to pay. He brought a suit against the State,
arguing that the district court, and ultimately the State, was liable. Although
there was no formal relationship between the court and this organisation, the
⁵³ Judgment of the Supreme Court, 7 February 1957, Minshū 11-2-227.

Supreme Court found that the district court had created the appearance that this
organisation was part of the court and was therefore liable for the transaction.⁵⁴
In a recent case, the court applied Articles 110 and 94, para. 2 in a rather
flexible way in order to protect a bona fide third party. A registered real property
belonged to X in A’s name by using X’s registered signet and the application form
for registration signed by X. Y believed without fault that A was the real owner,
since the property was registered in A’s name. The Supreme Court ruled that the
contribution of X to the creation of the appearance that A was the genuine owner
of the property was tantamount to cases where X was knowingly involved in the
creation of such an appearance, or where X had left the situation unchanged after
becoming aware of it, and concluded that by the application of the above provi-
sions by analogy, X was not entitled to claim that A had not acquired the property
from X.⁵⁵ This is an application by analogy, since in Article 94, the collusion of
A and X is required, and in Article 110, A must be an agent of X, which was not
the case here.
It is common commercial practice for a person to allow another to use his or
his company’s name in a commercial transaction in order to increase the second
person’s credibility, or to do business which is subject to licence without one. In
such cases, the Commercial Code provides that the principal and the person who
uses the principal’s name are jointly liable in any related transaction (Art. 23).
It should be noted that the Civil Code does not explicitly require that a per-
son who has had dealings with an unauthorised agent must be a bona fide party.
However, those who were aware or should have been aware that an agent was not
authorised need not be protected at the cost of the principal. There is case law to
the effect that such a person should be bona fide and not negligent in believing
that the person was authorised.⁵⁶
The second safeguard applies in situations where an agent who has actually
been granted authority by the principal exceeds the scope of that authority. Such
an act is nevertheless binding on the principal provided that the third party
justifiably believed that the agent had acted within his power (Art. 110). It is
necessary that at least some authority was granted to the agent. For example,
there was a case where the principal Y authorised an agent A to register a piece of
land which he owned. A was given the title deed and Y’s seal. Instead of registering
the property, A sold it to a third person X. X filed a suit against Y in order to have
the property transferred. The Supreme Court acknowledged that Article 110 was
applicable in such a case.⁵⁷
Blank powers of attorney are often issued in Japan. This can also be regarded as
a grant of authority, and if the person receiving such a wide power abuses it, this
⁵⁴ Judgment of the Supreme Court, 21 October 1960, Minshū 14-12-2661.

⁵⁵ Judgment of the Supreme Court, 23 February 2006, Minshū vol. 60, No. 2, p. 546.
⁵⁶ Judgment of the Supreme Court, 22 April 1966, Minshū 20-4-752.
⁵⁷ Judgment of the Supreme Court, 3 June 1971, Minshū 25-4-455.
is a matter governed by the same provision. When a representative of a juridical

person exceeds his power, this provision is also applicable.
The third safeguard is that the lapse of an agent’s authority cannot be claimed
against a bona fide third party, unless the latter was aware, or should have been
aware, that it had expired (Art. 112). Therefore, even after the termination of
agency, if the former agent acted as though he was still authorised, the former
principal may be held liable for the former agent’s act. In order to avoid this, the
principal has to let it be known that the agency has been terminated.
When a person acts ostensibly on behalf of the principal, but without author-
isation, his act is not binding on the principal, unless it is covered by the three
above-mentioned provisions. Where the transaction is not supported by apparent
authority, the principal may ratify the act (Art. 113, para. 1). Ratification should
be addressed to the other party, not to the agent. The other party may give notice
to the principal and ask him to decide whether he wishes to ratify the act or not
within a fi xed period of time (Art. 114). Until the principal ratifies the act, the
other party is entitled to rescind the transaction (Art. 115). An agent who acts on
behalf of another person, but fails to prove his authority, and also fails to have the
principal ratify the act, may be required to pay damages or effect performance at
the option of the other party (Art. 117, para. 2).
6. Prescription
The General Part of the Civil Code provides for extinctive prescription and
acquisitive prescription. This arrangement resembles French law and differs from
German law (on acquisitive prescription see Chapter 8). Rights arising from an
obligational relationship expire if not exercised for ten years. Rights other than
those arising from obligational relationships or ownership expire if not exercised
for twenty years (Art. 167, paras 1 and 2). Apart from this general provision, the
Code provides for short-term prescription of three years, two years, and one year
for some categories of rights arising from obligational relations (Arts 170–174).
Prescription can be interrupted or suspended under certain circumstances
(Arts 147 and 158–161).
The raison d’ être of extinctive prescription is first that those who do not exercise
their rights for a long period do not necessarily deserve protection, and secondly,
that after a long period it becomes difficult for the debtor to prove that he had
performed his obligation, and such debtors need protection. As mentioned earl-
ier, the invoking of prescription may be found to be against the doctrine of good
faith and fair dealing.
7
Law of Obligations and Contracts
1. General Rules of the Law of Obligations
(1) The structure of Book Three

Book Three of the Civil Code, which covers the law of obligations, begins with
a chapter containing general rules applicable to all kinds of obligations. It is fol-
lowed by a chapter on contracts. This chapter contains general rules of contract
law as well as provisions on typical contracts such as sale and lease. Then come
chapters on the management of affairs without mandate, unjust enrichment, and
tort. Obligations arise not only from contracts but also from non-contractual
matters such as tort or the management of affairs without mandate (for tort, see
Chapter 9).
Book Three starts with a voluminous chapter ‘General Rules of the Law of
Obligations’. It contains provisions on the effects of obligations, statutory interest
rates, non-performance, damages, obligations with multiple parties, as well as
the assignment and extinction of obligations. On the other hand, issues such as
capacity to act, agency, prescription, public policy, and defective declaration of
will are dealt with in the General Part of the Civil Code.
On the occasion of the centenary of the enactment of the Civil Code, proposals
for the reform of the Law of Obligations were made.¹ In 2001, the Part of the
German BGB on the Law of Obligations underwent a major change, including
the incorporation of consumer protection legislation in the Code. The French
Code is not in the process of reform. These developments worked in favour of the
reform. The Ministry of Justice has started preparation of a fundamental review
of this part of the Civil Code, but it is still at an early stage.
(2) Performance of obligations

It is the duty of the obligor to perform the obligation in accordance with the
terms of the obligation and in good faith. Unlike the German BGB, the provision
on good faith and fair dealing is found at the beginning of the Code, instead of in
¹ Y. Nōmi (ed.), Saiken-Hō Kaisei no Kadai to Hōkō (The Task and Direction of the Reform of the
Law of Obligations) (Tokyo, 1998).

Law of Obligations and Contracts 137
the Law on Obligations. This principle is considered to be applicable throughout
the entire Code.
In the performance of an obligation, irregularities such as delayed perform-
ance, defective performance, and impossibility of performance may occur.
(a) Delayed performance

The Code provides that if the obligation involved a fi xed time for performance,
the obligor is in delay after the obligation becomes due. If there is no fi xed time
for performance, the obligor is in delay after the obligee requires performance
(Art. 412). Performance of obligations may require the cooperation of the obli-
gee. If there is a justifiable reason for the delay, the obligor is not legally in delay.
In cases of delay, the obligee may apply to the court for enforcement, or execute
real security rights if the obligation is secured. If the obligation arose under a con-
tract, the obligee is entitled to rescind the contract and claim damages. In order
to claim damages, fault on the part of the obligor is a prerequisite. In the case of
default on a monetary debt, the obligor is not required to prove loss and the obli-
gee is not entitled to claim force majeure (Art. 419, para. 2). The obligor has to pay
interest for the delay (ibid., para. 1).
(b) Impossibility of performance

There are instances where the performance of an obligation becomes impossible.
There are also obligations that were impossible to perform already at the time
they came into effect. In the latter case the obligations are null and void, but this
is not a matter of impossibility of performance. An example is a contract con-
cluded after the destruction or loss of the subject matter, and the parties being
unaware of such circumstances. The obligor may be liable for damages in such
cases if he should have known of the prior loss of the subject matter.
An example of the impossibility of performance is a contract for the sale of a
house that was destroyed by fire after the conclusion of the contract. In another
case, a lessee of real property assigned the lease to a third party, but failed to
obtain the required consent to the assignment of the lessor.² Whether or not an
obligation is impossible to perform is decided by socially acceptable standards.
Although performance may be physically possible, there are cases where the
obligation is recognised as practically impossible to perform.³
In cases of impossibility of performance, the obligor is liable for damages only
if he was at fault (Art. 415). However, this rule does not apply if, at the time when
the obligation became impossible to perform, the obligor was already in delay. In
such cases the obligor is liable, even though he was not at fault for the impossibility
of performance itself.
² Judgment of the Supreme Court, 17 September 1959, Minshū 13-11-1412.

³ Judgment of the Supreme Court, 21 April 1960, Minshū 14-6-930.
It is generally acknowledged that force majeure releases both parties from
their obligations, except in cases of monetary obligation. If the obligation arose
from a contract, the obligee is entitled to rescind the contract on the ground of
impossibility of performance, but this is not a precondition for claiming damages
(Art. 543).
(c) Imperfect performance

Obligors are liable for failure to perform the obligation in accordance with its
purported meaning (Art. 415). This is denoted as imperfect performance in that
the obligation may have been performed, but not in a proper manner. An example
is the delivery of defective goods in a contract for sale. Another example is where
the obligor delivered poultry infected with disease, which later spread to the obli-
gee’s farm.⁴ As for defective goods, there are other provisions of the Civil Code in
the part on contracts, which can be applied concurrently with this provision.
The obligee is entitled to refuse to accept imperfect performance and to claim
damages. If proper performance can be expected, the obligee may demand such
performance within a reasonable period. Only when the obligor fails to make
such performance is the obligee entitled to claim damages. If proper performance
is impossible or impractical, the obligee may claim damages straight away.
In order to claim damages, there must be fault on the part of the obligor.
Although the Code does not explicitly require fault on the part of the obligor for
the delay in performance and improper performance, the court has acknowledged
that fault of the obligor is a prerequisite to the claim for claiming damages.⁵
In some instances the obligor may perform his obligation through another
person. Where it is common practice to employ such a person, or it was allowed
by the obligee, the obligor is liable for the acts of this person to the same extent
as he would be liable for his own acts. If the obligor was required, by statute or
contract, to perform the obligation himself, but still employed another person to
perform it, the obligor is liable for any act of that person.
(d) Duty of care for other person’s safety (obligation de securité)

Since the mid-1970s, another type of non-performance of obligation has emerged
through a series of judgments of the Supreme Court. In a leading case, a mem-
ber of the Self Defence Force was killed in a car accident on a base. His family
brought the case to court and claimed damages from the State four years after
the accident. A claim for damages based on tort had already become barred by
prescription, whereas a claim on the basis of general rules of obligation was still
possible. The Supreme Court ruled that the employer had an obligation on the
basis of the doctrine of good faith and fair dealing to take such necessary steps
⁴ German theory categorises such improper performance as positive breaches of obligation

(positive Vertragsverletzungen).
⁵ Judgment of the Supreme Tribunal, 22 November 1922, Minroku 27–1978.
to protect the life and health of employees, and that this applied to the State as
well.⁶ In another case, an employee of a company was killed on night duty. The
Supreme Court ruled that the employer was liable, since he had failed to take
sufficient measures to protect the employee.⁷
This ‘duty to care for safety’ is considered to be one of the effects of obliga-
tions and is based upon the same provision that covers impossibility and imper-
fect performance (Art. 415). This concept was devised to deal with cases where a
remedy in tort is either not available or inappropriate. It was influenced by devel-
opments in Germany (BGB, Art. 618) and France. It has developed as a doctrine
in employment contracts, but it is not necessarily limited to them.
(3) Refusal to accept performance

In some cases the obligee unreasonably refuses to accept performance, or it
becomes impossible for him to do so. The Code provides that the obligee is in
delay from the moment he refuses acceptance or it became impossible for him to
accept performance (Art. 413).
If the obligee refuses to accept performance tendered by the obligor, or is
unable to accept it, the latter may deposit the subject matter of the obligation
(Art. 494). Money and securities can be deposited at the public depository of the
local legal bureau.
If the obligation arises from a contract, the question of whether or not the
obligor is entitled to rescind the contract because of delay or refusal of acceptance
by the obligee and claim damages has been a focus of discussion. Some civil law
experts are of the opinion that the obligee has a duty to accept performance, and
his failure to do so will entail the same result as non-performance of the obliga-
tion by the obligor.
The court has generally denied such rights to the obligor. The Supreme Court
ruled that the obligor is not entitled to rescind the contract in such a case unless
there are exceptional circumstances.⁸ However, there was a case where a min-
ing company concluded a continuous supply contract with another company
for a fi xed period. After several deliveries and payments the latter company
refused to accept further delivery because of the fluctuations in the market. The
Supreme Court ruled that this company was obliged to accept the delivery, and
by his failure to do so, the mining company was entitled to rescind the contract
and claim damages. The Court based this on the doctrine of good faith and fair
dealing.⁹
⁶ Judgment of the Supreme Court, 25 February 1975, Minshū 29-2-143.

⁷ Judgment of the Supreme Court, 10 April 1984, Minshū 38-6-557.
⁸ Judgment of the Supreme Court, 3 December 1965, Minshū 19-9-2090.
⁹ Judgment of the Supreme Court, 16 December 1971, Minshū 25-9-1472.
It should be noted that the General Part of Contract Law (Chapter 2, Section 2)
contains a provision to the effect that in a contract in which both parties have an
obligation to do or give something, a party may refuse to perform until the other
party offers to perform his part of the obligation (simultaneous performance:
Art. 533). This defence, referred to as a defence of simultaneous performance,
can also be invoked where a contract has been rescinded and both parties have an
obligation to restore the status quo ante.
(4) Enforcement of obligation

If the obligor does not perform his obligation voluntarily, the obligee may apply
to the court for enforcement. The Law on Civil Enforcement governs enforce-
ment procedures.¹⁰ The method of enforcement varies depending on the nature
of the obligation. If the obligation in question is monetary, the assets of the
obligor (land, building, movables, ships, cars, and construction machinery, as
well as claims and other property rights) may be attached and auctioned by the
court. The obligee receives payment from the proceeds. If the obligation is to
give movables to another person, the bailiff takes possession of the property
and hands it over to the obligee. If the property in question is immovable, the
bailiff relieves the property from the possession of the obligor and gives it to the
obligee.
The method of enforcing an obligation to do something differs from that of
an obligation to give something. It is not possible directly to compel the obli-
gor to perform an obligation to do something. The Civil Code provides that in
such cases the obligee may apply to court for substitute performance, i.e. to have
a third party perform the obligation at the expense of the obligor (Art. 414). If
the obligation is to perform a juristic act, it can be substituted by a decision of
the court (Law on Civil Enforcement, Art. 173). If this is not possible, indirect
enforcement is available: the court orders the obligor to pay a certain amount of
money to the obligee until the former performs the obligation. Detention of the
obligor in cases of failure to perform an obligation is not available.
An obligation to desist from doing something is also enforced by indirect
enforcement (Law on Civil Enforcement, Art. 172, para. 1). If the result of non-
fulfillment of such an obligation remains, for instance when a person has built
a house unlawfully on another’s property, the latter may apply for substitute
enforcement to remove the house.
The methods of enforcement have been a focus of discussion in two cat-
egories of cases. One is the enforceability of an obligation to transfer custody
of a child. There is controversy as to whether a bailiff may take possession of
the child and hand it over to the person with parental authority, or whether
¹⁰ Law No. 4, 1979.

indirect enforcement should be used.¹¹ Habeas corpus procedure is often used

in this regard.¹²
Another problem concerns the publication of apologies in libel cases. The Civil
Code has a special provision that empowers the court to order the tortfeasor to
take necessary measures to restore the honour of the aggrieved party in cases of
libel (Art. 723). The courts often order the tortfeasor to publish an apology in
major newspapers. If he refuses to do this, the court allows substitute enforce-
ment. There was a case where the tortfeasor argued that substitute enforcement in
such a case was against the Constitution, which guarantees freedom of conscience.
The Supreme Court rejected this argument.¹³
(5) Effects of irregularity of performance

The obligee is entitled to damages in cases of irregularity of performance (delay,
impossibility of performance, and imperfect performance) on the part of the
obligor. Fault is a prerequisite, except in cases of monetary debts. Damages are
calculated on a monetary basis unless the parties choose otherwise (Art. 417).
The Civil Code has a special provision concerning the scope of damages
(Art. 416):
The object of a claim for damages is the recovery of loss which would normally arise from
the non-performance of an obligation.
Damages for loss that has arisen from special circumstances may also be claimed,
provided that the parties had foreseen, or could have foreseen, such circumstances.
It is generally accepted that non-performance in this context covers all kinds of
irregularities in performance, including impossibility and imperfect perform-
ance. Normal loss is recoverable in principle, while loss arising from special cir-
cumstances is recoverable only when it was or could have been foreseen by the
obligor. The burden of proof of the foreseeability of special circumstances lies
with the obligee.
The first problem here is the scope of ‘normal loss’. Whether the loss is normal
or has arisen from special circumstances is often difficult to determine. The law
protects the expectation and reliance of the obligee, but various factors such as
whether the party to the transaction was a merchant or not, and the type and
nature of the transaction, have to be taken into account.¹⁴
When, due to the default of the seller, the buyer has to purchase similar
merchandise at a higher price, the difference in price as well as the cost of finding
¹¹ Judgment of the Supreme Tribunal, 19 December 1912, Minroku 18–1087.

¹² Law No. 199, 1948.
¹³ Judgment of the Supreme Court, 4 July 1956, Minshū 10-7-785.
¹⁴ H. Nakata, Saiken Sōron (The General Part of the Law of Obligations) (Tokyo, 2008),
pp.153–171.
an alternative source of supply are normal loss.¹⁵ If the buyer expected to resell
the merchandise for a profit, this will also be normal loss. In one case, a contract
of sale was rescinded by the buyer because of default on the part of the seller. The
price of the merchandise had trebled by the time the contract was rescinded. The
court found that the loss should be calculated on the basis of this higher price,
since the increase in the price was the result of inflation that had already existed
at the time that the contract was concluded. Therefore, the difference between
the contract price and the price at the time of rescission by the buyer was found
to be a normal loss.¹⁶ On the other hand, the fact that the buyer had promised to
resell the goods to a third party at a price three times as high as the buying price
was found to be ‘special circumstances’, and unless it was foreseen by the obligor
(seller), the latter was not liable.¹⁷
Previously, it was generally accepted that this provision presupposes the
existence of ‘adequate causation’ between the irregularity of performance and
the loss. A study showed that this provision did not, as had been believed, come
from Germany; it actually came from English law, which in turn was influ-
enced by French law. The part dealing with loss arising from special circum-
stances originated from the celebrated English case of Hadley v. Baxendale.¹⁸
However, specialists of civil law in Japan had long maintained that this provi-
sion had come from German law and interpreted it in a way similar to that of
German law.
The difference between German law on one hand and French and English law
on the other is that the former presupposes full compensation as a principle, for
all loss caused by irregularities of performance, while the latter limits the scope of
damages. In order to mitigate the requirement of full compensation, German law
had to introduce the concept of ‘adequate causation’. However, there was almost
no use for such a concept in Japanese law, since the scope of damages was already
limited in French and English law.
Another problem related to this provision is the reasonableness of its applica-
tion to tort cases. Since tort is part of the law of obligations, and is regarded as one
of the causes from which obligations arise, this provision was intended to apply
also to tort. The Supreme Court has ruled that this provision, with modifications,
is applicable to tort.¹⁹ However, there is an influential view that casts doubt on
the applicability of this provision to tort cases.
The Code provides that damages for delay in repaying a money debt should
be calculated on the basis of a statutory interest rate of 5 per cent (Art. 404).
¹⁵ Judgment of the Supreme Court, 28 April 1961, Minshū 15-4-1105.

¹⁶ Judgment of the Supreme Court, 18 December 1953, Minshū 7-12-1446.
¹⁷ Judgment of the Supreme Tribunal, 5 April 1929, Minshū 8–373.
¹⁸ [1843–60] All ER 461. See Y. Hirai, Songaibaishō-hō no Riron (Theory of the Law on Compensation)
(Tokyo, 1971); E. McKendrick, Contract Law, 7th edn (New York, 2007), pp. 423–424.
¹⁹ Judgment of the Supreme Court, 7 June 1973, Minshū 27-6-681. See also Judgment of the
Supreme Tribunal, 22 May 1926, Minshū 5–386; Fukimaru case.
For obligations arising from commercial transactions, the rate is 6 per cent
(Commercial Code, Art. 514). The parties may agree to a different interest rate,
but this rate should not exceed that provided by the Law on the Limitation of
Interest Rates.²⁰
In determining the amount of damages, fault on the part of the obligee who
contributed to the loss is also taken into consideration by the court (Art. 418).
(6) Assignment of claims

Claims can be assigned to a third party unless the nature of the relationship
does not allow it (Art. 466). Assignment can be restricted between the parties,
but this cannot be set up against a bona fide third party. Assignment of an
ordinary debt where the obligor is specified (unlike securities) can be effected
between assignor and assignee. However, it cannot be claimed against the
obligor or any other third party unless the assignor notifies the obligor, or
the obligor consents to the assignment (Art. 467, para. 1). Notification or
consent must be made by a document with a fi xed date, such as a notarised
document or registered and certified mail. Assignment of securities such as
promissory notes, bills of exchange, and cheques, as well as bearer claims,
cannot be claimed against the obligor and other third parties unless the
assignor endorses the assignment in writing on the securities and hands it to
the assignee (Art. 469).
With the development of securitisation, it was felt that this method of publi-
cising assignment of claims was unsuitable when there were a number of debtors
such as housing loan debtors in relation to which the claim has to be assigned.
In order to facilitate securitisation, a new Law on Exceptions to the Civil Code
on Means of Publicity concerning Assignment of Claims was enacted in 1998.²¹
This Law enables juridical persons to publicise assignment of claims by registration
at the local legal bureau (Art. 2, para. 1).
Although there is no explicit provision in the Code, the obligor may assign
his obligation to a third party under certain conditions (assumption of debt).
Assumption of debt is commonly used in cases where a person intends to pur-
chase real property that is already hypothecated. If the obligor, the obligee, and
the third party all agree, the debt can be assumed by the third party. If the obli-
gor and the third party agree that the latter should perform the obligation in lieu
of the obligor, unless the obligee agrees, the obligor is still required to perform
obligation. However, if the obligee demands performance of this third party, the
latter must perform the obligation. When the obligee agrees to the assumption of
debt, whether the original obligor is totally exempted from performance or is still
liable with the third party has to be determined.
²⁰ Law No. 100, 1954. ²¹ Law No. 104, 1998.

(7) Action revocatoire and action subrogatoire

In case of non-performance of obligations, the obligee may want to attach the
assets of the obligor. It is in the interest of the obligee to ensure that the assets of
the obligor do not fall below the amount owed and thus endanger the perform-
ance of the obligation. The Civil Code provides two devices to safeguard the
obligee’s expectation: the right to revoke the act of the obligor that is against the
obligee’s interest (the action revocatoire), and the right of subrogation (the action
subrogatoire). German law provides only for the latter, while the French Code
provides for both devices.
In an action subrogatoire, the obligee may exercise a right belonging to the
obligor in order to ensure the performance of a monetary obligation by the latter
(Art. 423, para. 1). For example, A lends one million yen to B and the repay-
ment is due. B, in turn, had lent half a million yen to C some years ago, but
failed to remind C, since he was aware that once he received the money from
C, he would have to repay it to A. B does not have any other assets. In such a
case, A may exercise B’s right against C, and thus prevent prescription.
The action subrogatoire was designed to ensure the performance of mone-
tary obligations. It was supposed to be a stage preceding civil enforcement, but
today, by substitution, the same effect as civil attachment can be achieved in
some cases. In the above example, obligee A has two alternatives. First, he may
sue B and obtain an enforcement judgment against B, attach B’s right against
C, and then demand payment from C. Secondly, he may simply substitute B
and claim payment directly from C. Initially, C was required to repay the debt
to B, not A. However, by the judgment of the Supreme Court in the 1930s,
obligees were allowed to claim performance directly from the third party (in
this example, C).²²
In order to justify such substitution, it is required that the obligor does not have
sufficient assets to repay the debt. However, the courts have gradually relaxed
this requirement and broadened the applicability of this provision. Firstly, this
right can now be used to secure the transfer of a specific property. For instance,
A purchases a house from B, who had originally purchased it from C. However,
B has failed so far to register his ownership and therefore A is also unable to reg-
ister the property in his name. A may exercise B’s right against C to demand that
he cooperate in registering the property. In order to make things simpler, A is
actually allowed to demand directly that C cooperate in registering the house in
A’s name.²³
Secondly, in leases of land or houses the status of the lessee is not fully pro-
tected, since the lessee’s interest is not a right in rem, but a right in personam.
However, in some cases lessees are entitled to exercise those rights belonging to
²² Judgment of the Supreme Tribunal, 12 March 1935, Minshū 14–482.

²³ Judgment of the Supreme Tribunal, 6 July 1910, Minroku 16–537.
the lessor-owner. For example, A owns a house on a piece of land owned by B

under a lease. C is obstructing the use of this land, but B does not take necessary
measures to terminate this, although he is entitled to do so on the basis of his
ownership. On the other hand A, as a lessee, is not entitled to take action directly
against C. The court has acknowledged that B, as a lessor, has obligations to A to
enable him to use the property, and therefore A may exercise B’s right to termi-
nate obstruction by C. Whether B has sufficient assets to cover the debt to A is
irrelevant in both cases.²⁴
Another device designed to safeguard the assets of the obligor for the benefit of
the obligee is the action revocatoire, the latter’s right to revoke an act of the obligor
harmful to the interests of the obligee(s). When an obligor knowingly effects such
a juristic act, the obligee may request the court to rescind this act (Art. 424, para.
1). Unlike the right to subrogation, the obligee’s right has to be exercised through
the court. For example, X lends one million yen to Y. Y does not want to repay the
debt, so he gives away his only property to Z. X may apply to the court to rescind
the transaction between Y and Z.
It should be added that once bankruptcy proceedings have started, obligees are
entitled to deny the validity of the acts of the obligor performed after his financial
status has become critical. This right of disclaimer is provided in the insolvency
legislation.²⁵
The right of revocation is often resorted to when several obligees (creditors)
compete for priority. In the above example, Z and X are both obligees against Y,
but they are unsecured. Therefore if Z receives repayment in one way or another
from Y, X will try to annul the transaction by resorting to the right of revocation
and have the money or assets returned to Y.
The right to revocation is designed to safeguard the interests of ‘all obligees’
by preventing a decrease in the obligor’s assets below the value of the debt
(Art. 425). Unlike the right of subrogation, the obligation does not have to
be due when the obligee exercises his right. Acts which can be rescinded are
those which harm the interests of the obligee and render full performance of
an obligation impossible. A sale of property at an unreasonably low price, or
giving away property, are examples. As a rule, if the remaining assets are suf-
ficient to perform the obligation, such acts cannot be revoked. The court has
even found a sale of a real property at a reasonable price to be harmful, since
cash is more easily disposed of than real property, and therefore a decrease in
the assets is more likely, although the nominal amount of the assets has not
changed.²⁶
The act of the obligor that harms the interests of the obligee may involve a
third party. If invalidation of such an act is without limitation, it may affect
²⁴ Judgment of the Supreme Tribunal, 16 December 1929, Minshū 8-12-944.

²⁵ Law No. 71, 1922.
²⁶ Judgment of the Supreme Tribunal, 5 February 1906, Minroku 12–136.
the interests of those who unwittingly entered into a transaction with the obli-
gor. Therefore, the Code provides that the obligee may not exercise this right of
revocation when the beneficiary of the obligor’s act was not aware at the time of
transaction that the act was harmful to the obligee (Art. 424, para. 1). Thus, if
obligor A sold his only property to Y at a low price, obligee X may not revoke the
sale contract between A and Y insofar as Y had not known that the sale was harm-
ful to the interests of X. The burden of proof lies with the beneficiary Y. The same
applies where there is a bona fide purchaser from Y.
(8) Obligations with multiple parties

(a) Divisible and indivisible obligations
The General Part of the Law of Obligations accommodates provisions concern-
ing obligations involving several obligees or obligors. There are three kinds of
obligations with multiple obligees or obligors: divisible obligations, indivisible
obligations, and joint and several obligations. In cases where there are several
obligees or obligors, the obligation is divisible in equal proportions unless the
parties have agreed otherwise (Art. 427).
This presumption of divisible obligation may be against the expectation of the
obligee, since if one of the obligors repaid his portion of the debt, he is discharged,
regardless of whether the remaining obligors repay their portion. Therefore,
scholarly opinions attempted to narrow the application of this presumption. For
instance, where the joint financial status of obligors was taken into account when
the contract was made, such an obligation should not be regarded as divisible.
Furthermore, when the obligation arose in return for a benefit which all obligors
share, this obligation should not be considered to be divisible.²⁷ However, the
court maintains that without a special agreement or particular circumstances,
obligations are divisible.²⁸
The second type of obligation with several obligees or obligors is indivisible
obligation. The Code provides that an obligation is indivisible when the parties
have so agreed, or when the object of obligation is by its nature indivisible (Art.
428). An obligation of joint lessees of the same property to pay the rent is an
example of the latter. When there are several obligors under an indivisible obliga-
tion, the obligee may demand full performance from any or all of the obligors. A
change in relationship between the obligee and one of the obligors does not affect
the relationship between the obligee and other obligors, except for discharge
and novation. On the other hand, when there are multiple obligees the obligor
may effect performance against any of the obligees. A change in circumstances
²⁷ Nakata, supra, p. 441.

²⁸ Judgment of the Supreme Court, 13 October 1970, Hanji 614–46.
between any one obligee and the obligor does not affect the others, except where
novation or discharge is involved.
The third type of obligation with multiple obligees is joint and several obliga-
tion. In joint and several obligations, the obligee may demand performance from
any or all of the obligors. The obligee may demand all obligors to repay the total
amount of debt or ask any of them to repay the same amount. If the debt is repaid
by any of the obligors, the obligation is extinguished and the obligors who repaid
the debt can be indemnified by other obligors.
In joint and several obligations, circumstances involving one of the obligors
and the obligee affect the relationship between the other obligors and the obli-
gee less than in the case of a divisible obligation but more than in an indivisible
obligation. As compared with German law, circumstances affecting others are
broader in Japan.²⁹ Prescription, discharge, merger, and novation affect other
parties (Arts 435–439).
Thus, indivisible obligations are more advantageous to the obligee than
joint and several obligations, since in the latter there are more instances where
circumstances arising between the obligee and one of the obligors affect the other
parties.
(b) Suretyship
The Civil Code also provides for suretyship as a type of obligation with several
obligees or obligors. A surety is liable if the principal obligor does not perform the
obligation. Suretyship arises from a contract between the obligee and the surety,
without the consent of the principal obligor. However, in practice, it is usually
a tripartite contract between obligee, obligor, and surety. When the principal
obligation is extinguished, the suretyship extinguishes as well. If the principal
obligation is assigned by the creditor, the suretyship follows.
As a result of the amendment to the Civil Code in 2004, a suretyship contract
is required to be in writing. If the contract is concluded by recording the content
electronically, it is deemed to have been concluded in writing (Art. 446, paras 2
and 3).
Suretyship covers the principal obligation as well as the interest, liquidated
damages, and penalty. When the contract between the principal obligor and the
obligee is rescinded, the suretyship secures the obligor’s duty to recover the status
quo ante. For instance, when a sale contract is rescinded, the surety of the seller
guarantees the return of the money to the buyer.³⁰
There are two kinds of defence that a surety may raise when an obligee demands
performance. Firstly, the surety may ask the obligee to demand performance
from the principal obligor (Art. 452). Secondly, the surety may refuse perform-
ance if he proves that the principal obligor has sufficient financial capacity to
²⁹ E. Hoshino, Minpō-gairon (Outline of Civil Law), vol. III (Tokyo, 1978), pp. 156–157.
³⁰ Judgment of the Supreme Court, 30 June 1965, Minshū 19-4-1143.
perform the obligation, and that enforcement of the obligation would be easy
(Art. 453). From the viewpoint of an obligee, these two defences are disadvanta-
geous. Therefore, instead of ordinary suretyship, joint and several suretyship is
utilised more frequently.³¹ The above-mentioned two defences are not allowed
and the provisions of joint and several obligations apply (Art. 454).
Another variation is the floating suretyship. In a continuing relationship
such as that between a bank and its customer, or a wholesaler and a manu-
facturer, it is necessary to secure an unspecified number of obligations, the
amount of which varies. The Code has no special provision for this kind of
suretyship, but the courts have long acknowledged it. Such a suretyship could
be too harsh on the surety. It is generally acknowledged that when there is a
significant change of circumstances, for example when the fi nancial status of
the principal obligor rapidly deteriorates, or the status of the principal obligor
changes, the surety may rescind the contract of suretyship and be released
from further obligation.
In 2004, the Civil Code was amended and provisions on floating suretyship
for money loans were introduced (Arts 465-2–465-5).³²
It is common for Japanese companies to require a surety when employing an
individual. The surety is expected to guarantee payment of any damages that
arise from future acts of the employee. However, sureties were often unexpectedly
made liable for large amounts of money, and the courts therefore tried to limit
the liability of the surety. In 1933 the Law on Suretyship for Employment was
enacted.³³ According to this Law, the term of a suretyship cannot exceed five
years, although it is renewable (Arts 1 and 2). A surety may rescind suretyship
and be discharged from further obligations under certain conditions (Art. 4).
When deciding the amount of damages, fault on the part of the employer and
other relevant circumstances are to be considered (Art. 5).
(9) Extinction of claims

Claims may become extinguished on various grounds. The Code lists the follow-
ing grounds of extinction: performance, set-off, novation, discharge, and merger.
Performance can be effected by a third party, unless the nature of the obligation
does not allow it, or the parties expressed a different intention (Art. 474, para. 1).
Those with no legal interest in the obligation may not perform the obligation
against the intention of the obligor (ibid., para. 2).
Performance is valid in some cases even where it was not made to the genuine
obligee. The Code provides that performance of the obligation to a person who
appears to be an obligee is valid, if the obligor was not aware that the obligee
was not genuine, and was not at fault in believing so (Art. 478). This provision is
³¹ Y. Hirai, Saiken Sōron (The Law of Obligations, General Part) (Tokyo, 1985), pp. 252–254.
³² Nakata, supra, pp. 480–484. ³³ Law No. 42, 1933.
designed to protect those who rely on appearance. For instance, if a bank allows
someone who turns up with a certificate of deposit and a signet to withdraw
money from an account, the bank is normally exempted from liability, provided
that it has exercised the required standard of care. The Supreme Court acknowl-
edged the validity of payment by a bank in these circumstances to someone who
claimed to be the depositor.³⁴
The obligor may effect substitute performance with the consent of the obligee
(Art. 482). For instance, the obligor may repay the debt by giving the obligee a
piece of land instead of money with the latter’s consent. This has the same effect
as a performance. It is different from novation, in which parties agree to alter
essential elements of the original contract, and as a result the original obligation
is extinguished and a new obligation emerges (Art. 513).
Where the obligee either refuses to accept performance, or is unable to accept it,
the obligor may deposit the subject matter of the obligation at a depository and is
then exempted from liability. The same applies where the obligee cannot be identi-
fied or found without any fault on the part of the obligor (Art. 494). Substitute per-
formance also functions as a means of securing the performance of obligation.³⁵
Set-off is commonly used as a means of security in banking transactions. The
Code provides that when two persons have obligations to one another, each may
be relieved of his obligation by a set-off to the extent corresponding to their obli-
gation (Art. 505, para. 1). In order to set off an obligation, both obligations have
to be of the same nature and due. Set-off is effected by a declaration of will by
a party. The effect of set-off is retrospective to the time when both obligations
became mature for set-off (Art. 506). Set-off is not possible when the parties
agreed otherwise, or the nature of the obligation does not allow it. However, the
agreement between the parties cannot be claimed against a bona fide third party.
In obligations arising from tort, the obligor may not set off his obligation against
the obligee (Art. 509).
Banks use set-off in the following manner. When a bank lends money to a
customer, the latter is asked to open a fi xed-period deposit account. It is agreed in
advance between the parties that if the customer’s creditor attaches this account,
the bank will set off its obligation against the customer’s obligation. In this way,
the bank manages to secure at least the amount of the fi xed deposit in priority to
other creditors. The lawfulness of this practice was contested before the Supreme
Court. The Court upheld the validity of such an arrangement.³⁶
Other causes of extinction of claims include discharge and merger. If the obli-
gee discharges the obligor, the obligation is also extinguished (Art. 519). Merger
denotes a situation where the right and the obligation come to belong to the same
person (Art. 520), for example when the obligor inherits the status of the obligee.
³⁴ Judgment of the Supreme Court, 4 October 1966, Minshū 20-8-1565.

³⁵ Law No. 78, 1973.
³⁶ Judgment of the Supreme Court, 24 June 1970, Minshū 24-6-587.
2. The Law of Contract
(1) The sources of contract law

Japanese contract law is not embodied in a single piece of legislation. It is found
in parts of the Civil Code and the Commercial Code. The second chapter of
Book Three of the Civil Code, following the first chapter on the General Rules
of the Law of Obligations, deals with contracts. Chapter Two is divided into
the general part and the special part. While the former sets out general rules of
contract law, the latter lists 13 types of ‘typical contracts’: gift, sale, exchange,
loan for consumption, loan for use, lease, employment, work contract, mandate,
bailment, partnership, life annuity, and settlement. In addition, the Commercial
Code has provisions on commercial transactions that are applicable to contracts.
The Commercial Code also provides for typical commercial contracts such as
sale, société anonyme, carriage of goods, warehousing, and insurance.
The provisions of the Commercial Code are special rules in relation to the Civil
Code, and therefore have priority whenever they are applicable. In the absence of
relevant provisions in the Commercial Code, commercial custom is first applied;
only when there is no such custom is the Civil Code applied. Since contracts are
juristic acts, provisions in the General Part (Book One) of the Civil Code on
juristic acts apply to contracts. Thus, a contract, which is an outcome of a declar-
ation of will, can be null and void or voidable on various grounds, such as fraud,
mistake, or duress, as provided in the General Part. Agency is also covered in the
General Part.
(2) The role of contracts in Japan

A contract comes into effect when the intentions of the parties coincide, i.e. when
offer and acceptance correspond. The concept of consideration does not exist in
Japan. A gift is also considered to be a contract. A contract is concluded without
any formality, subject to some exceptions. For instance some contracts, such as
a contract to sell arable land, require permission from an administrative agency.
In a contract of pledge, actual transfer of the collateral is needed to give rise to
the contract. As mentioned earlier, the contract of suretyship is required to be in
writing. The Law on Sale by Instalments requires that a statement in writing be
given after the contract is concluded (Art. 4).³⁷
The fact that the Code does not require a contract to be made in a written
form does not mean that, in Japan, contracts are generally made orally. On the
contrary, contracts are concluded in writing in business transactions as well as
transactions amongst ordinary people. The issue of whether there is a unique
³⁷ Law No. 57, 1976.

Japanese approach to contracts has been discussed in Japan and abroad for some
time. A distinguished specialist of the sociology of law in Japan once pointed out
that the necessity of concluding a formal contract is not fully recognised in Japan,
and that the binding force of contract is not as strict as in Europe and the United
States. The Japanese prefer not to form a relationship based on contract, since this
presupposes the possibility of conflict.³⁸
This notion of the limited role of contracts in Japanese society is now being
questioned. In contemporary Japan contracts do play a significant role in various
areas. Contracts which large companies conclude with foreign companies differ
little from contracts seen in Europe or the United States, while contracts between
Japanese companies can be brief.
Ordinary people also have to use written contracts, for instance agreements of
employment, loan agreements, and leases. These kinds of contracts are often in a
standard form, and contain clauses disadvantageous to those in the weaker bar-
gaining position. Although parties generally feel bound by a contract, the validity
of specific clauses has been contested in the courts. The courts have invalidated
some clauses out of considerations of fairness. Incidentally, if one of the parties to
a contract is a major company, they do not usually invoke those clauses against
ordinary individuals. Neither do they sue individuals for breach of contract, pre-
ferring to settle the case out of court to avoid damaging the company’s reputation
and, in the long run, causing harm to the company.³⁹
On the other hand, contractual relationships between companies within Japan
are somewhat different, and perhaps this is why Japanese contracts are considered
to be unique. A majority of contracts between companies are long-term contracts
in the sense that they are valid for one year, but are automatically renewed unless
either party objects. These contracts, especially between longstanding trading
partners, are often very short, in some cases only a few pages. They define the
rights and duties of the parties in broad terms and leave the rest to negotiation
between the parties should a conflict arise. When a difficulty arises the parties do
not necessarily stick to the terms of the contract, but try instead to reach a mutually
acceptable compromise.⁴⁰
A foreign observer pointed out that parties to a contract in Japan are not seen
as entities with conflicting interests; they are considered to have entered into a
mutually beneficial and cooperative relationship to achieve a common purpose.
In this sense, a contract represents a relationship of mutual trust, and therefore it
³⁸ T. Kawashima, ‘The Legal Consciousness of Contract in Japan’, Law in Japan, vol. 7, (1974),
pp. 1–21.
³⁹ For detailed discussion, see Société de legislation comparé, L’ étude de droit japonais (Paris,
1989), pp. 391–491.
⁴⁰ Ibid. See also K. Egashira, Shōtorihik-hō (Law on Commercial Transactions), 3rd edn
(Tokyo, 2002), pp. 4–5. V. Taylor, ‘Continuing Transactions and Persistent Myth: Contracts in
Contemporary Japan’, Melbourne University Law Review, 1993, p. 352ff. T. Uchida and V. Taylor,
‘Japan’s “Era of Contract”’, in D. Foote, Law in Japan: A Turning Point (Tokyo, 2007), p. 454ff.
is sometimes considered to be a sign of distrust if either party attempts to cover
every possible contingency in the contract.⁴¹
It should be noted that flexible and simple contracts are not necessarily unique
to Japan. A survey conducted in the United States showed that even their con-
tracts between companies with continuing relationships are simple and flexible.
In Japan simple and brief contracts are also normally used between companies
which have had continued a business relationship for some years. It is also erro-
neous to state that the Japanese feel less bound by a contract than the nationals
of other countries. Studies indicate that Japanese people may disregard standard
contracts, but once a formal written contract has been concluded they observe
it faithfully.⁴² A recent international survey on the observance of contracts sug-
gested that, contrary to the conventional view, the level of observance of contracts
by the Japanese is around the world average.⁴³
(3) General rules of contract law

Freedom of contract is recognised in Japanese law, despite the absence of an expli-
cit provision in the Code. It includes the freedom to conclude a contract, as well
as the freedom to decide its content. As in other industrialised countries, this
principle, which emerged in the nineteenth century laissez-faire State, cannot
be maintained without modification in a modern age. For example, if employ-
ment agreements or leases of immovables were to be left entirely to the contract-
ing parties, it might lead to unfairness and injustice to employees and lessees
respectively.
Modifications have therefore had to be made to this principle in light of
contemporary developments. In the field of housing law, for example, the right
of the parties to decide the content of a contract is limited in various ways. Under
certain conditions, the court may substitute its own views for the will of the les-
sor. Clauses of a lease of land and buildings that are against the law and the inter-
ests of the lessee are void (Law on Lease of Land and Houses, Arts 21 and 37).⁴⁴
Similarly, in the field of labour law, employment agreements are subject to strict
control by labour legislation. Furthermore, due to the growing necessity to safe-
guard the interests of consumers, laws concerning consumer protection, which
impose further restrictions on the freedom of contract, have been enacted.
In order to conclude a contract, an offer must be made by one party and
accepted by the other. Japanese companies often make inquiries and exchange
letters of intent. However, these enquiries and letters of intent by no means con-
stitute offers. The offeror is not necessarily free to retract his offer. When the
⁴¹ E. J. Hahn, Japanese Business Law and the Legal System (Westport, 1985), pp. 10–11.
⁴² W. Gray, ‘Use and Non-Use of Contracts’, Law in Japan, vol. 17 (1984), pp. 98–99.
⁴³ M. Kato and R. Fujimkoto, Nihonjin no Keiyaku-Kan (The View of the Japanese on Contracts)
(Tokyo, 2005), pp. 82–88.
⁴⁴ Law No. 90, 1991.
offeror asks that acceptance be made within a fi xed period, he may not retract
the offer until the period has expired (Art. 521, para. 1). Even when the period of
acceptance is not set by the offeror, he may not retract the offer within the period
reasonably necessary for him to receive the acceptance (Art. 524). In commercial
transactions, if the offeree fails to accept the offer within a reasonable period the
offer loses its effect (Commercial Code, Art. 508, para. 1). Contracts between the
parties who are apart in distance come into effect when the notice of acceptance
was sent out (Art. 526, para. 1).
In recent years, some special laws that set out exceptions to the general rules of
contract law have been enacted. First, the Consumer Contract Law was enacted
in 2000.⁴⁵ According to this Law, if an entrepreneur, when soliciting consumers
to conclude a consumer contract, misled consumers by (i) providing consumers
with untrue information regarding material facts; or (ii) giving a decisive state-
ment regarding the payment consumers are to receive out of the goods, rights, or
service which in reality is uncertain, consumers are entitled to retract their offer
or acceptance (Art.4).
Secondly, the Law on Special Rules to the Civil Code concerning Electronic
Consumer Contracts and Electronic Notice of Acceptance was enacted in 2001.
The Civil Code provides that mistake on significant matters renders a juristic act
null and void, but if the declarant of will is grossly negligent, he is not entitled to
claim that the act is null and void (Art. 95). In electronic consumer contracts (i.e.
contracts between an entrepreneur and consumers concluded electronically via
computers), this rule does not apply to offers or acceptances by consumers if (i) at
the time the consumer sent the offer or acceptance via a computer, he did not have
any intention of offer or acceptance; or (ii) the consumer had a different intention
(Art. 3). Furthermore, a provision of the Civil Code which provides that the con-
tract comes into effect by the party sending out the acceptance (Art. 526, para. 1)
does not apply when sending out acceptance by electronic means.⁴⁶
There may be cases where, due to a change in circumstances, it is no longer
fair to require a party to perform his obligations. Although there is no explicit
provision in the Code, it is generally understood that under certain conditions
such obligations should not be enforced. In a leading case the Supreme Tribunal
acknowledged in principle that when, due to circumstances such as the enact-
ment of a new law regulating prices, the contract becomes impossible to execute
at the price which had been agreed, and when this impossibility of performance
is likely to continue for a considerable time, it is not reasonable—taking into
consideration the doctrine of good faith and fair dealing—to bind the parties to
the contract.⁴⁷
⁴⁵ Law No. 61, 2000. English translation is available at: <http://www.consumer.go.jp/english/

cca/index.html>.
⁴⁶ Law No. 95, 2001.
⁴⁷ Judgment of the Supreme Tribunal, 6 December 1944, Minshū 23-19-613.
After the end of the Second World War, confronted with steep inflation, the
Supreme Court held, obiter dicta, that a seller may rescind his contract on the
ground of change in circumstances.⁴⁸ However, the Supreme Court has not
applied this doctrine in a specific case so far. In recent years the price of land has
risen sharply and there still are cases where this doctrine can be applied, but the
Supreme Court remains cautious.⁴⁹
(4) Culpa in contrahendo

Parties may be found liable not only for the breach of a contract, but for an act or
omission in the process of concluding a contract. The leading case was the judg-
ment of the Supreme Court in 1984. In this case, a real estate developer relied on
a dentist who expressed his intention to purchase premises in a building. After
the developer modified the design of the building so that it was suitable for a
dental practice, the dentist did not object to the developer’s proposal to add the
cost of doing so to the price of the premises and continued the negotiation for
the purchase. However, in the end, he failed to purchase the premises. The court
found the dentist liable for the cost of changing the design for a breach of duty in
the process of concluding the contract based upon the doctrine of good faith and
fair dealing.⁵⁰
The doctrine of culpa in contrahendo originated in German case law. It was
accommodated in the BGB by the recent reform of the Law of Obligations.⁵¹
However, it has been noted that this doctrine emerged out of the unique structure
of the BGB, and is not necessary in Japan, where the court can simply resort to
the doctrine of good faith and fair dealing and achieve the same end.⁵² Whether
it should be characterised as culpa in contrahendo or not, the court has acknowl-
edged certain duties of the parties before the conclusion of a contract, namely
regarding the duty to provide information or explanation.
In a recent case, a bank and a construction company were found liable for the
failure to provide information that the planned construction of a building was
potentially in conflict with the Architectural Standard Law, and that the price
of the land was destined to fall. The court based this judgment on the doctrine
of good faith and fair dealing.⁵³ In another case, the court acknowledged tort
liability of the seller and the construction company for the failure in providing
⁴⁸ Judgment of the Supreme Court, 6 February 1951, Minshū 5-3-36.

⁴⁹ T. Watanabe in: Minpō Hanrei Hyakusen (Hundred Selected Cases in Civil Law), vol. II (1996),
pp. 100–101.
⁵⁰ Judgment of the Supreme Court, 18 September 1984, Hanji No. 1137, p. 51. See also the
Judgment of the Supreme Court, 27 February 2007, Hanji No. 1964, p. 45.
⁵¹ G. Wegen et al. (eds), BGB Kommantar, 3 Auflage, (Köln, 2008), S. 551.
⁵² Y. Hirai, Saiken Kakuron (The Special Part of Contract Law), I (a), (Tokyo, 2008), pp. 128–130.
See also T. Uchida, Minpō II, Saiken Kakuron (Civil Law, The Special Part of the Law of Obligations),
2nd edn (Tokyo, 2007), p. 26.
⁵³ Judgment of the Supreme Court, 12 June 2006, Hanji No. 1941, p. 94.
information regarding the state and the manner of operation of the fire shutter.
Again, this was based on the same doctrine.⁵⁴
(5) Termination of continuous contracts

In Japan, contractual relationships between companies often continue for many
years because of the intention of the parties to develop a long-term business rela-
tionship. A contract between a manufacturer and a distributor is an example.
The common practice is to conclude a contract that is valid for a year or several
years which is automatically renewable, unless either party gives advance notice
of non-renewal. Many of these continue for ten to twenty years, and sometimes
for thirty years. This does not mean, however, that these contracts had provided
for a long effective period from the beginning. In most cases, a short-term con-
tract later develops into a long-term (continuous) contract after being renewed
multiple times.
In a survey of the long-term contracts of 130 companies conducted in 1993
respondents were given a hypothetical case of a supplier refusing to renew a
contract which had been renewed for ten years. While only 6.1 per cent of the
respondents replied that the refusal to renew was invalid, 54 per cent replied that
compensation should be paid, and 23 per cent replied that the contract should
continue for some time and that during that time the parties should negotiate.⁵⁵
Under the Civil Code, according to the principle of freedom of contract, par-
ties are free to terminate the contract on the grounds provided by the contract or
to refuse its renewal. However, there is established case law that requires a justifi-
able ground (some judgments refer to a ‘compelling ground’) for the termination
(either by rescission or by refusal of renewal) of a contract which presupposes
a continuous relationship, such as distributorship agreements. This emanates
from the doctrine of good faith and fair dealings and is applicable regardless of
any clauses in the agreement that allow termination or limit the renewal of the
agreement. The underlying idea here is that since such a relationship has devel-
oped on the basis of mutual trust, and since the parties, particularly distributors,
have made investments upon the legitimate expectation that the relationship
would continue, they should be given an opportunity to recoup their investment,
provided that the distributors had acted in good faith.
Such disputes have not reached the Supreme Court. Instead, judgments of
the lower court comprise the case law. In a case decided by the Nagoya High
Court, there was a sole distributorship contract without fi xed terms. After three
years, due to a disagreement over the rate of the commercial margin, the sup-
plier terminated the supply. The distributor had made a significant investment
⁵⁴ Judgment of the Supreme Court, 16 September 2005, Hanji 1912–8.

⁵⁵ S. Kitayama, ‘Keisokuteki-keiyaku nikansuru Kokkunai-Chōsa no Kekka (The Outcome of
the Survey of Continuous Contracts in Japan)’, NBL No. 629, pp. 56–58.
and had marketed the product as their primary merchandise, built sales facilities,
paid for advertisements, and developed the market. The court ruled that, under
such circumstances, where the distributor has made some reasonable investment,
unless there is a significant act of bad faith by the distributor or a significant rea-
son which makes it impossible for the parties to continue (in other words, ‘a com-
pelling ground’), stability of contractual relationship is required, and a unilateral
termination of the contract is impermissible, unless there is a reasonable period
of notice which enables the loss to be recovered, or reasonable compensation on
the basis of the doctrine of good faith and fair dealing. The court ordered the
supplier to pay compensation equivalent to one year’s profit.⁵⁶ The Tokyo High
Court followed this line of reasoning in 1984, where it found the contract to be a
‘continuous sales contract’, ruled that the supplier was in default since there was
no act of bad faith, or circumstances indicating that continuation of the contract
could not be expected, and ordered the supplier to pay compensation.⁵⁷
Regarding the refusal to renew a contract, theoretically the parties are fully
entitled to refuse the renewal since freedom of contract allows it. However, this is
again limited by the doctrine of good faith and fair dealing. In a recent case, the
Fukuoka High Court ruled on the refusal to renew a contract of newspaper agent
by a newspaper company. In this case, the contract was first concluded in 2000
and had been renewed until 2006. The distributor had made substantial invest-
ment in order to facilitate the sale of the newspaper. The court ruled that in order
for the newspaper company to refuse renewal of this continuous contract, a jus-
tifiable ground, i.e. that the distributor was in substantial breach of the purpose
of the contract, had destroyed mutual trust, and thus, circumstances that made
the continuation of the contract difficult had emerged. Insufficient sales, lack of
marketing efforts, and false reporting did not qualify as such grounds.⁵⁸
The court takes into consideration various factors when deciding whether there
is a reasonable ground/compelling ground. In the above case, the Nagoya High
Court ruled that whether or not a continuous transaction could be unilaterally
terminated should be decided by taking into account the stakes of both parties
in the transaction, the level of effort put into the transaction, and the amount of
damage likely to be suffered by the termination should be weighed. The court
pointed out that if the distributor had significantly invested in the transaction,
had made efforts to maintain and expand business, and is likely to suffer sub-
stantial damage, unless there is a sufficient reasonable ground, the transaction
could not be terminated. In conclusion, the court ordered the supplier to pay
compensation.
On the other hand, by taking into account various circumstances, the court
may find the termination to be with grounds. In a case involving Gillette, a US
⁵⁶ Judgment of the Nagoya High Court, 29 March 1971, Hanji No. 634, p. 50.
⁵⁷ Judgment of the Tokyo High Court, 24 December 1984, Hanji No. 1144, p. 99.
⁵⁸ Judgment of the Fukuoka High Court, 19 June 2007, Hanta No. 1265, p. 253.
company producing and marketing razor blades, and a Japanese wholesaler, the
Tokyo District Court ruled that refusal to renew the contract by the supplier
should be placed under some restriction based upon fairness or the doctrine of
good faith and fair dealing. The court proceeded to examine whether there was
a justifiable ground for refusing renewal in this case. The court found that there
were instances where the wholesaler had favoured Gillette’s competitors over
Gillette. Although the wholesaler claimed that it had invested substantially in
developing a sales network and in advertisements, etc., there was no proof of this.
It was pointed out that the wholesaler was actually the largest wholesaler in razor
blades, and its investment was not solely for selling Gillette products. The court
ruled that in light of the fact that the wholesaler was the largest in that particular
market in Japan, the relationship between the manufacturer and the wholesaler
in this case was on an equal footing, and that it cannot be said that as a result
of the termination of the contract the wholesaler had become unable to recover
its investment. Therefore, the refusal to renew the contract was found not to be
against the doctrine of good faith and fair dealing.⁵⁹
According to an authoritative commentary, the court takes into consideration,
amongst other matters, the following factors:⁶⁰
(i) the circumstances which led to the conclusion of the contract; namely
whether it was intended to be a continuous relationship and to what extent
the supplier created the expectation on the part of the distributor that it
would be a long-term contract;
(ii) the status of the parties in the market and the relative bargaining power
between the parties;
(iii) the extent of investment by the distributor in the sale of the product;
(iv) the length of the relationship;
(v) the contribution of the distributor to the increase in the sale of products;
(vi) the circumstances or reasons which led to termination; any special
advantage accorded to the supplier by termination;
(vii) the behaviour of the supplier throughout the process of dissolution of the
relationship; whether or not there was sufficient advance notice, renegotiation
of terms etc.;
(viii) the expected loss of the distributor.
Thus, it is now an established precedent that in order to terminate a continuous
contract, regardless of the existence of any provisions in the contract that allow it,
a justifiable ground or compelling ground is required. This is generally supported
by academic opinion.⁶¹
⁵⁹ Judgment of the Tokyo District Court, 5 February 1999, Hanta No. 1073, p. 171.
⁶⁰ K. Iwaki, in T. Taniguchi et al. (eds), Shinpan Chūshaku Minpō (14) (Tokyo, 1993),
pp. 108–109.
⁶¹ T. Uchida, Keiyaku no Jidai (Era of Contracts) (Tokyo, 2000), p. 11. See also H. Nakata,
Keizokuteki Keiyaku no Kenkyū (Les aff aire successives: étude juridique) (Tokyo, 2000).
This approach has been generally supported by experts. However, recently,
some academics have been promoting the view, in light of ‘deregulation’ and the
principle of ‘self-responsibility’, that as a rule, companies should be allowed to
terminate such agreements solely on the basis of commercial considerations, and
only in exceptional cases should it be restricted. This view is yet to find support by
the courts. The balancing of interests by the court so far seems to have adequately
weighed the interests of the parties.
(6) Contract of sale

Although the Special Part of the Contract Law covers thirteen types of contracts,
due to limited space, only the contract of sale will be focused on here.
In a contract of sale, the title to the goods is transferred in accordance with the
terms of the contract, i.e. it depends on the intention of the parties. The prob-
lem of when title is transferred to the buyer has long been a controversial issue
in Japanese civil law. Some have suggested that the answer to this question has
little practical effect. There are provisions in the Code that regulate the transfer of
risk and the rights and duties of the parties, and these provisions can be applied
without determining exactly when title is transferred.⁶²
The Code provides for the transfer of risk: (i) when a specified thing, the object
of a contract, is lost or damaged by a cause not attributable to the seller, the risk is
borne by the buyer (Art. 534); (ii) otherwise, when performance of an obligation
has become impossible due to a cause not attributable to either of the parties, the
seller is not entitled to performance (Art. 536, para. 1).
However, if the first principle is applied strictly, it may be unfair to the buyer.
For instance, if A contracts to purchase a painting from B, but before the paint-
ing is handed over to A it is damaged by an earthquake, under this principle
A, the buyer, has to bear the loss and therefore still has to pay the agreed price.
Th is can hardly be considered as an appropriate solution. Scholarly opinion
maintains that in such cases, where the object has not been handed over to the
buyer, nor the price paid, this provision should not be applied on the ground
that this was against the intention of the parties, or that there is a different
trade practice.
In cases of non-performance of contractual obligations, provisions in the
general part of the Law of Obligations (Arts 412–422) as well as special provi-
sions included in the part dealing with contracts (Arts 540–548) apply. If it
is a contract for sale, provisions in the part on contract of sale also apply (Arts
560–578).
The Chapter on Contracts includes provisions on the liability of a seller who
does not have full legal rights over the property, or where the object of sale is
⁶² R. Suzuki, Bukken-hō no Kenkyū (Treatise on Property Law) (Tokyo, 1976), pp. 126–143.
defective. Firstly, when the object of sale belongs to a third party and not to the
seller, unlike in French law, the contract itself is valid. The seller is obliged to
obtain rights over this object and transfer them to the buyer (Art. 560). If he fails,
the buyer may rescind the contract and claim damages (Art. 561).
Secondly, there are cases where part of the rights over the object belong to a
third party. This happens, for example, when a joint owner sells property without
the consent of other owners. In such a case, if the seller is unable to transfer the
entire object to the buyer, the latter may ask for a reduction of the price in pro-
portion to the part which is unavailable. If the buyer would not have purchased
the object had he known that only part of it was available, he may rescind the
contract. The seller is liable in both cases (Art. 563).
In a similar vein, when the amount of the object delivered is less than that
agreed in the contract, or when a part of the object is lost, the buyer is protected
in the same way (Art. 565). The same applies to cases where rights of others to use
the property such as superficies, emphyteusis, servitude, or a registered lease, etc.,
exist on the property: the buyer may rescind the contract and demand compen-
sation (Art. 566).
Th irdly, there are cases where the object of sale has an encumbrance over
it. When the buyer loses the property as a result, he may rescind the contract
and claim damages. Furthermore, if the buyer pays money and discharges the
hypothec or preferential right, he may demand reimbursement from the seller
(Art. 567).
Finally, the seller is liable for objects with latent defects. The Code provides
that when any latent defect is found in the object sold the buyer may rescind the
contract if he is unable to achieve the purpose of the contract with that defect
(Art. 570). The defect has to be latent, i.e. a defect which an ordinary buyer would
not be able to find with the normally required care. If the seller can prove that the
buyer knew or should have known, by exercising due care, the existence of the
defect, he can avoid liability. The buyer has to exercise this right within one year
of discovering the defect (Art. 566, para. 3).
It should be noted that the Commercial Code contains special provisions
governing sales between merchants. The Code provides that a buyer should
inspect the object of sale without delay after he has received it, and if he fails to
inform the seller immediately of any defect found at that time he is not entitled
to claim against the seller. Even when the defect was of a nature that could not
be found at the time of this initial inspection, the buyer has only six months
after receiving the object in which to enforce his rights (Commercial Code,
Art. 526, para. 1).
The defect does not have to be physical. The Supreme Court has acknowledged
a latent defect in a case where a buyer purchased a piece of land destined to be
part of a planned road. The plan to build a road had been officially announced,
but it was more than 10 years before the contract was concluded and it was
unknown to the buyer.⁶³ There was a similar case where a seller sold a forest that
was designated as a preservation area.⁶⁴
There is some controversy over the relationship between the provision on the
seller’s liability in the part of the Code on contract of sale (Art. 570), and the pro-
vision on incomplete performance in the General Part of the Law of Obligations
(Art. 416). When a defective item is sold, the seller’s liability based upon Article
570 can be pursued, but it can also be considered as an improper performance on
the part of the seller, and Article 416 may possibly apply.
Practical differences between applying Articles 416 and 570 are that firstly, the
buyer may claim damages, but not replacement by Article 570. Secondly, claims
based on Article 570 have to be made within one year, while claims under Article
416 can be made for 10 years. Thirdly, Article 416 requires fault on the part of the
seller, while Article 570 imposes strict liability.
While there are different views amongst specialists of civil law, the courts seem
to be of the view that the buyer may freely choose between those two provisions.
In one case, the buyer purchased broadcasting equipment. The seller demanded
payment, which the buyer refused on the ground that the equipment was defective.
The buyer claimed that the contract was rescinded on the basis of Articles 416
and 570, and demanded replacement. The seller argued that since the buyer had
accepted the equipment he had no right to claim replacement because of defect-
ive performance. The Supreme Court ruled that the buyer was entitled to invoke
either provision and was still entitled to replacement.⁶⁵ This view is shared by
most academics. It is also asserted that in such cases claims based on Article 416
should be subject to the same time limit as Article 570—one year—by reason of
the doctrine of good faith and fair dealing.
A separate law on product liability was enacted in 1994 (see Chapter 9).⁶⁶
Japan has been reluctant to ratify the UN Convention on the International
Sale of Goods. Companies involved in international sale of goods were not par-
ticularly keen to join, since the business practice seemed to be remote from the
Convention. However, with more countries ratifying the Convention, Japan is
now moving towards joining the Convention. The Ministry of Justice has begun
preparation for ratification.
(7) Consumer protection

In recent years, calls for better protection of consumers’ rights have gained
support in Japan. Incidents where consumers suffered from fraudulent businesses
such as pyramid business schemes occurred from time to time. Consumers were
sometimes forced to accept disadvantageous terms in standard form contracts.
⁶³ Judgment of the Supreme Court, 14 April 1966, Minshū 20-4-649.

⁶⁴ Judgment of the Supreme Court, 8 September 1981, Hanji 1019–73.
⁶⁵ Judgment of the Supreme Court, 15 December 1961, Minshū 15-11-2852.
⁶⁶ Law No. 85. 1994.
Significant changes to the law of contract have been made in recent years
in order to protect the interest of consumers by the amendment to the Law on
Installment Sales and the enactment and subsequent amendments of the Law on
Door-to-Door Sales.⁶⁷ The former mandates the seller to explain to the buyer rele-
vant terms of sale, such as the cash price, the price payable by installments, terms
of payment, and the rate of commission. After the conclusion of the contract, the
seller is required to issue a written statement to the buyer which specifies these
terms and the time of the transfer of title as well as conditions for rescission (Arts
3 and 4). The latter has identical provisions (Arts 4 and 5). Similar arrangements
can be found in the Law on the Regulation of Credit and Loan Business.⁶⁸
A novelty resulting from the increased protection of consumers is the ‘cooling-off ’
period. This is designed to protect consumers who have been unfairly persuaded
by the seller to make an unnecessary purchase. The Law on Installment Sales and
the Law on Door-to-Door Sales provide that when a seller concludes a contract or
accepts an offer in a place other than his sales office, the buyer or the offeror may
rescind the contract or retract the offer respectively in writing within eight days
of being informed of his rights by the seller (Law on Installment Sales, Art. 4-3;
Law on Door-to-Door Sales, Art. 6). The seller is not entitled to compensation in
such cases. A similar provision can be found in the Law on Investment Advisory
Business (Art. 17).⁶⁹
Another development was the enactment of the Law on the Sale of Financial
Instruments in 2001.⁷⁰ This Law provides for the duty of the seller to give explan-
ation on material facts regarding the financial product, namely the possibility of
losing the capital, and the possibility of loss exceeding the capital (Art. 3, para.
1). The seller is liable for the loss caused to the buyer in cases of a breach (Art. 5).
These are exceptions to the general rule of Japanese contract law, which does not
require any formality for concluding a contract.
There are also problems concerning standard form contracts. In a modern
society, ordinary people usually do not have a say in forming contracts con-
cerning various goods and services, such as transportation, the supply of gas
and electricity, telephone services, insurance, and banking. They merely have
the choice of whether to enter into a contractual relationship or not; even this
choice is very limited, since these services or items are indispensable to normal
living.
In standard form contracts, where one party is an individual and the other is a
major company, the latter may abuse its bargaining power and force the former to
accept unfair or unjust contract terms. Some standard form contracts are so spe-
cialised and complicated that ordinary people find them unintelligible. Various
provisions in standard form contracts have led to controversy. Clauses which
limit liability are particularly problematic.
⁶⁷ Laws No. 159, 1961 and No. 57, 1976. ⁶⁸ Law No. 32, 1983.
⁶⁹ Law No. 74, 1986. ⁷⁰ Law No. 101, 2000.
Although no special law on this issue—such as the German Gesetz zur Regelung
des Rechts der Allgemeinen Geschäftsbedingungen (recently integrated in the BGB)
and the UK Unfair Contract Terms Act—has yet been enacted, some laws have
been amended in order to exercise more control over such standard contracts.
Apart from the measures adopted by administrative and economic laws, methods
of controlling standard form contracts have also been discussed in civil law. Some
experts propose that the public order and good morals provision of the Civil
Code (Art. 90) should be broadly applied in order to invalidate unfair terms,
while others propose to resort to the doctrine of fairness and good faith. Another
approach denies the validity of unreasonable clauses in a standard form contract
because of the lack of consent. In support of this latter approach, there have been
cases involving standard form leases of houses or land where lower courts found
some clauses to be clauses de style under which the parties had no intention to be
bound.
In 2000, after a prolonged history, the Consumer Contract Law was finally
enacted. As mentioned above, this Law provides for the right of consumers to
retract their offer or acceptance in certain circumstances. If an entrepreneur
solicits unspecified and many consumers in a misleading manner, certified con-
sumer organisations may seek an injunction in court (Art. 12, para. 1). This Law
also enables certain limitation of liability on the part of the entrepreneurs to be
set aside (Art. 8, para. 1).
3. Management of Another Person’s Affairs

and Unjust Enrichment
Book Three of the Civil Code also deals with obligations arising without any
contract. There are three categories: management of another’s affairs with-
out mandate, unjust enrichment, and tort. (Tort will be covered separately in
Chapter 9.)
A typical case of management of another’s affairs without mandate is when
someone repairs the roof of a neighbour’s house in his absence when the area
is hit by a storm. There are also cases where a person repays the debt of another
person without being asked to do so. The Code provides that those who started
to manage affairs for the benefit of another person without any obligation to do
so are under an obligation to manage the affairs in accordance with the nature
of the affairs, and by means which most suit the interest of the other person. If
the person managing the affairs is able to assume the will of the principal, he
must manage the affairs in accordance with his will (Art. 697). The necessary
expense incurred for the benefit of the principal can be reimbursed (Art. 702,
para. 1).
A person shall not be allowed to enrich himself at the expense of another. The
Code provides that those who benefited from another person’s assets or service
with no legitimate ground and thus caused loss to that person are liable for resti-
tution insofar as the benefit remains (Art. 703). For example, a landlord who loses
his title, but keeps taking rent from the tenant, enriches himself without legal
ground and is obliged to reimburse the rent to the new owner.
In one case, X repaired a bulldozer for M, who had rented it from Y. M went
bankrupt and the repaired bulldozer was returned to Y. X sued Y in order to
recover the fee for the repair on the ground of Y’s unjust enrichment. The Supreme
Court found Y to have benefited from unjust enrichment.⁷¹
There are cases where a person gives something to another person, but it later
turns out that this person was under no obligation to do so. For example where,
after the buyer paid the price, the sales contract was rescinded. In such cases the
seller has an obligation to return the money received as payment, plus interest.
However, where the absence of the obligation was known to the obligor, but he
nevertheless performed the obligation, he is not entitled to restitution (Art. 705).
Those who gave something on illegitimate grounds, i.e. against public policy
and good morals, are also not entitled to restitution. For instance gambling debts
cannot be claimed (gambling is prohibited in Japan). On the other hand, even
after the money has been paid there are cases where restitution is possible. The
Code provides that if the ground for illegitimacy is primarily on the part of the
beneficiary, restitution is possible (Art. 708).
⁷¹ Judgment of the Supreme Court, 16 July 1970, Minshū 24-7-909.

8
Property Law
1. The Concept of Real Rights
Book Two of the Civil Code covers ‘real rights’. This concept comes from the
German BGB, where Sachenrecht (the law of property) and Schuldrecht (the law of
obligation) are contrasted.
Real rights are the rights of a person over a thing, i.e. a relation in rem rather
than in personam. They are distinguished from rights arising from obligational
relationships in two ways. Firstly, real rights are rights which allow one to take
control of, use, and make profits from a specified thing, while rights arising from
obligational relations are rights that require another person to do or not to do
something. Secondly, real rights can be claimed against any other person, whereas
in rights arising from obligational relations only the parties are involved, and the
relationship exists only between them. Therefore, the former is often referred to
as an absolute right, and the latter a relative right.
This distinction has some practical consequences: in cases of infringement, a
holder of real rights is entitled to demand termination of such infringement by
any person, while as a rule a holder of rights arising from obligational relations
does not have such power against a third party. Thus, rights of ownership can
serve as a basis for an action requiring the removal of an obstruction to the prop-
erty, but a lessee may not initiate such an action on the basis of his rights under a
lease. Furthermore, if a real right and a right arising from an obligational relation
coexist on the same property, the former has priority. For example, if the owner of
a piece of land sells it, the lessee of the property may not claim his rights against
the new owner unless his right is registered.
However, the distinction cannot be strictly maintained any more. Some rights
arising from obligational relations are protected in a similar way to real rights,
as a result of the enactment of special laws and case law which has accumulated
since the enactment of the Civil Code. For example, lessees of a piece of land may
claim rights against a new owner under certain conditions. Lessees, who do not
have standing, may also protect their interests from infringement by a third party
in the same way as owners, by substituting the owner-lessor.¹
¹ Judgment of the Supreme Court, 18 December 1953, Minshū 7-12-1515.

Property Law 165
The General Part of the Civil Code defi nes a thing as a corporeal thing
(Art. 85). Things are divided into immovables and movables. Immovables are
land and ‘things firmly attached to it’ (Art. 86, para. 1). Houses and buildings
are examples of immovables. They are treated separately from the land to which
they are attached. This is one of the peculiarities of Japanese property law. Trees
used to be traded separately from the land, but the Civil Code does not spe-
cifically refer to trees. By virtue of the Law on Trees of 1909, trees which are
registered, or which have signs indicating the name of the owner are treated as
separate immovables.²
All things which are not immovables are movables (Art. 86, para. 2). The
distinction between immovables and movables has practical effect in that, firstly,
in transactions involving the former, registration or another means of publicity
is needed. Secondly, a person may obtain ownership of a movable instantly by
taking possession peacefully and openly with an intention to own. Ownership
of immovables cannot be obtained in this manner. Thirdly, some rights, such as
hypothec, may exist over immovables only.
One of the attributes of real rights is that whenever a real right is infringed,
the holder of the right may take an action in court to eliminate the infringement.
Historically, this has developed out of the rei vindicatio and the actio negatoria of
Roman law, as modified by the German Gemeinesrecht. The current Civil Code
does not have general provisions concerning actions based on real rights. The
closest provisions are those concerning actions on the basis of possession (Arts
197–202). However, it is understood that the Civil Code presupposes such actions
based upon real rights, namely ownership.
The three types of action based upon real rights against infringement are
actions for recovery, actions to eliminate infringement, and actions to prevent
infringement. In recent years, the latter two types of actions are sometimes used
in disputes concerning the protection of the environment, particularly against
noise, vibration, and odour. The most important of the real rights, which serve
as the basis of such actions, is ownership, but such actions can also be taken by
secured creditors in case of infringement of hypothec.
The Civil Code lists ten kinds of real rights; no rights other than those provided
for by the Code or other laws may be created (Art. 175). The Code firstly provides
for the right of possession, which emanates from actual possession of a thing.
This arrangement of the Code is problematic because possession is not a right in
itself, but merely a state of affairs. In any case, the Code gives protection to actual
possession in various ways. Secondly, the Code provides for ownership. Thirdly,
there are also four types of real rights which allow a person to use another’s prop-
erty: superficies, emphyteusis, servitude, and commonage. Superficies is a right
to use the land of another for the purpose of owning a building or trees and plants
(Art. 265). Emphyteusis is a right to cultivate or raise livestock on another’s land
² Law No. 22, 1909.

subject to paying a rent (Art. 270). Servitude (servitus praedorium) is the a right to
use another’s land for the convenience and benefit of one’s own land, for example
using adjacent land for access (Art. 280). Finally, commonage is a traditional
right which belongs to a collective body, for instance a village community, to use
a forest, field, fishery zone, or irrigation system. Commonage under the Civil
Code primarily concerns forests and fields.
In addition, there are four types of real security rights: rights of retention,
preferential rights, pledge, and hypothec. In pledge, the possession of the col-
lateral is transferred to the creditor: in case of default the creditor may secure
repayment from the proceeds of auction. In hypothec, the creditor does not have
possession of the collateral, but if the debtor defaults, the creditor may secure
repayment in the same way as in pledge.
The principle that only those real rights provided by law should exist and
that one may not change the content of a real right arbitrarily is justified by the
‘absolute’ nature of real rights, i.e. real rights affect not only the other party but
everyone else. If one could freely change the content of a real right or create new
rights, this would prejudice the predictability and stability of transactions. This
principle was also needed to eliminate traditional rights which did not fit into the
scheme of the modern Code in the late nineteenth century. However, since the
enactment of the Code, some new real rights have developed either by statute or
by practice. Firstly, laws such as the Mining Law, the Fishery Law and the Law
on Hypothec of Factories have created new types of real rights.³ The Civil Code
itself was amended and a new type of hypothec, base (floating) hypothec, was
introduced. Secondly, various atypical security rights have developed out of prac-
tice, sometimes against explicit provisions of the Code. Some of these later found
a statutory basis. The Law on Contracts of Security by Provisional Registration
is an example. Case law has played a significant role in shaping these rights and
ensuring fairness in their enforcement.
2. Registration
The Code provides that the establishment and assignment of real rights are
given effect by the declaration of will of the parties (Art. 176). No formalities
such as registration or transfer of possession are needed. This arrangement fol-
lows the pattern of French law in which property transactions are completed par
eff et des obligations. In contrast, the German BGB requires the registration or the
actual transfer of the object for the transaction to be effected. There, ownership
of immovables, for instance, is not assigned by mere agreement; entry into the
³ Laws No. 289, 1950; No. 267, 1949; and No. 54, 1907.
Property Law 167
Grundbuch (Land Register) is needed.⁴ Registration must be made jointly by the

current and the prospective holders of the right concerned.
Although registration or other means of publicity are not a prerequisite for the
transaction to take effect in Japan, in order to claim rights against a third party,
they are necessary. Thus, the Code provides that the acquisition, relinquishment,
or alteration of a real right cannot be set up against a third party unless it is reg-
istered when it involves an immovable (Art. 177), or the profession transferred
when it involves a movable (Art. 178).
Land, buildings, and trees are registered in accordance with the Law on the
Real Property at the local legal bureau.⁵ Registers are organised so that each piece
of land, building, or tree is assigned a separate section. Ownership and other real
rights are entered on the register in chronological order. Most rights which can
be registered are real rights, but a lease of immovables, which is a right arising
from obligational relations, can also be registered. The registration procedure for
immovables is now computerised.
There are two major issues with regard to registration. First is the scope of
transactions which require registration. There is no doubt that changes of prop-
erty relations resulting from sale, gift, or other juristic act must be registered.
In addition, changes caused by the rescission of a juristic act must also be regis-
tered under certain circumstances. In a leading case, A sold a house to B. A later
rescinded the sales contract because of fraud on the part of B. However, after
the rescission but before A restored his registration, B sold the house to C who
registered it in his name. The court ruled that A was not entitled to assert his
ownership or to claim rescission against C because he had failed to register the
return of property in time.⁶
The second problem is the scope of the third parties in Article 177. The Code
does not limit the scope of the third parties against whom registration is needed in
order to claim alteration in real rights. Therefore, technically, if A sells his house
to B, while C, knowing that the house was sold to B, nevertheless purchases the
house from A and registers it in C’s name, B cannot claim his ownership against
C because B had failed to register his interest. Thus, even a third party who was
aware that the seller was not the real owner is entitled to claim the lack of registra-
tion on the part of the genuine owner. The issue is whether any category of third
parties, for instance a third party acting in bad faith, should be protected in this
way. It should be noted that the Law on Registration of Immovables provides
that those who obstruct registration by fraudulent means or by extortion are not
entitled to take advantage of the lack of registration (Art. 4).
The Supreme Tribunal, the predecessor of the present Supreme Court before
the end of the Second World War, limited the scope of third parties as provided
⁴ N. Horn, H. Kötz, and H. G. Leser, German Private and Commercial Law: An Introduction
(Oxford, 1982), pp. 179–182.
⁵ Law No. 24, 1891.
⁶ Judgment of the Supreme Tribunal, 30 September 1942, Minshū 21–911.
in Article 177 soon after the adoption of the Code. In a leading case, it ruled that
a third party against whom no right can be claimed without registration meant
those who have a justifiable interest in claiming the lack of registration.⁷
The Supreme Court further limited the range of third parties covered by this
provision. This concerns ‘third parties in extremely bad faith’. In a leading case,
A sold a forest to Y. Part of the forest had been left out of the register and was
therefore not registered even after this change in ownership. X became aware of
this and also found out that A still had the deed, so he purchased this part of the
forest with a view to selling it to Y at a high price. Y refused to buy, so X sold it
to B. When B brought an action against Y, X repurchased the property from B,
registered it in his name and continued the suit. The Court ruled that X had acted
in extreme bad faith, and was not entitled to claim the lack of registration on the
part of Y.⁸
Similarly, when the third party acts against his previous words or acts, or with
the intention of harming the person who has not registered, the court has ruled
that these third parties may not take advantage of the lack of registration. This
conclusion can be justified by estoppel or the doctrine of good faith and fair
dealing.⁹
Unlike the German Grundbuch, in which registration has a constitutive effect,
the registry in Japan does not always reflect the true state of property relations.
People often fail to register transactions because of tax consequences, or sim-
ply because of the cumbersome procedure. When one purchases land from its
registered owner, there is no guarantee that the registered owner is the genuine
owner.
In some cases, the court has interpreted the law flexibly to protect those
who relied on registration. In one case, the owner of a piece of land, X, had
registered the property in A’s name without the latter’s consent. X had no inten-
tion of transferring the property to A. A found out later that the property was
registered in his name and, taking advantage of this, sold the property to Y,
who registered it in his name. X brought a suit against Y to have his owner-
ship confirmed. The Supreme Court applied Article 94, para. 2 which provides
for declaration of will by collusion, although there was no collusion between
X and A, and ruled that X was not entitled to claim ownership against Y. In
this case X was responsible for creating the appearance that A was the genuine
owner. Instead of protecting A, who, according to the register, was the owner,
or the genuine owner X, the court chose to protect Y, who had relied upon the
register.¹⁰
7
Judgment of the Supreme Tribunal, 15 December 1908, Minroku 14–1276.
8
Judgment of the Supreme Court, 2 August 1968, Minshū 22-8-1571.
9
e.g. Judgment of the Supreme Court, 16 January 1969, Minshū 23-1-18.
¹⁰ Judgment of the Supreme Court, 24 July 1970, Minshū 24-7-1116.
Property Law 169
3. Ownership
The Civil Code protects possession of property without questioning whether the
possessor has a genuine right to the property in question. The possessor of an
object is presumed to have a lawful right over the object (Art. 188). A possessor
in good faith acquires the fruits of the thing in his possession (Art. 189, para. 1).
If his possession is infringed, he is entitled to claim recovery of the object, the
elimination of an infringement, or the prevention of further infringements (Arts
197–200).
The Code defines ownership as the right to use, make profit from, and dispose
of a thing, subject to such limitations as may be imposed by law (Art. 206). The
Constitution provides that the contents of property rights are to be defined by
law in accordance with public welfare (Art. 29, para. 2). Private property may
be taken for public purposes upon payment of just compensation (Constitution,
Art. 29, para. 3). Ownership is no longer considered as absolutely inviolable. As
the Germans say, Eigentum verpflichtet (ownership is accompanied by duties).
There are various limitations on ownership arising from different policy
considerations. In particular, the ownership of land and houses is subject to
various restrictions. For instance, the Law on Agricultural Land provides that
agricultural land may not be transferred or sold without the permission of the
governor of the prefecture government (Art. 3).¹¹ The City Planning Law imposes
restrictions on the use of land in order to ensure the ‘healthy development and
orderly maintenance’ of towns and cities (Art. 1).¹² The Law on Acquisition of
Land for Public Purposes allows private land to be expropriated, but with just
compensation (Art. 1).¹³
Another important development concerning the ownership of land and houses
is the gradual move towards strengthening protection of lessees. Laws such as
the Law on the Lease of Land and Houses protect tenants by limiting the rights
of owners.¹⁴ For instance, a lease contract for a piece of land is automatically
renewed, unless the lessor objects to it without delay and with justifiable reasons,
provided that there is a building on it (Art. 5, para. 1). Refusal to renew the con-
tract requires a justifiable reason on the part of the lessor (Art. 6). The court has
strengthened the protection afforded to tenants by finding claims by landlords to
be abuses of rights, or by resorting to the doctrine of good faith and fair dealing as
provided by the Civil Code.
Ownership of a thing can be acquired by different means, such as by contract
or inheritance. Movables can be acquired by taking possession of things without
an owner (Art. 239, para. 1) or of lost articles (Art. 240). Also in cases of accession,
consolidation, and processing, ownership may be acquired (Arts 242–246).
¹¹ Law No. 229, 1952. ¹² Law No. 100, 1968. ¹³ Law No. 219, 1951.
¹⁴ Laws No. 49 and No. 50, 1921 (replaced by Law No. 90, 1991).
Movables can also be acquired through immediate acquisition. The Civil Code
provides that a person who has peacefully and openly started to possess a movable
with an intention to exercise a right over it shall acquire that right immediately.
The person must have acted in good faith and without negligence (Art. 192). In
addition to ownership, rights which can be obtained by immediate acquisition
include the right to pledge.
Immediate acquisition is designed to protect those who deal in movables
because, unlike immovables, rights over movables are not publicised. Possession
is the primary means of manifesting ownership, and therefore those who believe
that the possessor is the genuine holder of the right need to be protected if they
acquire the apparent interest. As a corollary, movables which can be registered,
such as cars, ships, and aircraft, cannot be acquired in this way. Similarly, imme-
diate acquisition is not possible when the transaction itself is void or voidable for
want of capacity to act, defects in the declaration of will, or through acts of an
unauthorised agent.
Ownership may be acquired through acquisitive prescription. Acquisitive and
extinctive prescriptions are both provided for in the General Part of the Civil
Code. For acquisitive prescription, the general rule is that a person who, with
an intention to own, has peacefully and openly possessed a thing belonging to
another for twenty years acquires ownership. If a person has possessed a property
peacefully, and at the time of taking possession was in good faith and acted
without negligence, this person acquires ownership in ten years (Art. 162, paras 1
and 2).
Good faith in this context means that the possessor was not aware that the
property in question belonged to another person. In both cases ‘intention to own’
on the part of the possessor is required. Thus, the lessee of land will not acquire
ownership of the land since he possesses the property with the intention to use it
as a lessee and not to own it.
Prescription is interrupted by acknowledgement on the part of the possessor,
or by demand, attachment, provisional attachment, or disposition by the genuine
holder of the title (Art. 147). A reminder (extra-judicial) must be followed by legal
process within six months in order to effect interruption (Art. 153).
The raison d’ être of prescription has been a source of controversy among civil
law specialists. The prevailing view is that acquisitive prescription is needed to
protect those who deal with possessors of a property in the belief that the present
state reflects the genuine legal relations. The Register of Immovables in Japan
does not necessarily reflect the true state of affairs; there is no guarantee that
the registered owner is the genuine holder of the title. Therefore, in parallel with
immediate acquisition for movables, the Code provides for acquisitive prescrip-
tion of ten years covering immovables, requiring good faith and the absence of
negligence.
The reasoning for the acquisition after twenty years of possession is that after a
long period of time it is difficult for anyone out of possession to prove that he is a
Property Law 171
genuine holder. Therefore, the fact that a party has continued to possess the prop-
erty openly and peacefully should serve as a basis for establishing his ownership.
It may be the case that there is a genuine owner other than the possessor, but he
should have claimed his right during the twenty years, and since he has not done
so, the possessor is protected.
Someone intending to purchase land should of course check the register. The
fact that property is registered in someone’s name does not necessarily mean that
this person is the genuine owner. This person may have purchased the property
from someone who was not a genuine owner. Or this person may have abused
his power as agent and registered the property in his own name. However, if the
prospective buyer checks the past record of the property and ascertains that the
registered owner has occupied the property peacefully and openly with the inten-
tion to own for more than 20 years, it can be assumed that this person holds the
title.¹⁵
Incidentally, a possessor may assert his own possession only, or may choose
also to have the period of his predecessor’s possession counted (Art. 187).
4. Joint Ownership
Title to property can be held or shared by several persons. The Civil Code has
general rules for joint ownership, and special rules concerning the property of
associations (kumiai) and inherited estate. Scholarly opinion recognises indivis-
ible joint ownership (gōyū), and collective joint ownership (sōyū) along with joint
ownership in general (kyōyū). In indivisible joint ownership, the right of each
owner to dispose of his share is limited. Commonage is denoted as collective
joint ownership. No member has a divisible share, each being entitled only to
use and profit from the property together with the other owners. The property is
administered not by the parties jointly, but by a representative selected according
to custom or tradition. However, in recent years commonage has gradually lost
its original meaning and become more individualistic.
In general joint ownership, as provided by the Civil Code, each owner has a
share, and is entitled to make use of the whole property in proportion to his share
(Art. 249). Each joint owner may dispose of his share, but may not change the state
of the property without the consent of the other owners (Art. 251). The adminis-
tration of the property is determined by a majority vote of the joint owners whose
voting rights are related to the value of their shares (Art. 252). There are special
provisions concerning associations and inherited estate (Arts 676, 906–911).
In recent years, joint ownership has gained significance in relation to
collective housing. Due to the concentration of population in the cities, a large
¹⁵ E. Hoshino, Minpō Gairon (An Outline of Civil Law), vol. 1, new edition (Tokyo, 1993),
pp. 249–253.
number of people now live in a block of flats, which is often jointly owned
by the inhabitants. The provisions on joint ownership in the Civil Code were
unable to cope effectively with these types of buildings. For instance, the Civil
Code requires the consent of all joint owners when altering the state of the
property (Art. 251). Therefore, if a block becomes old and needs refurbishment,
or needs to be rebuilt, the unanimous support of all owners is necessary. Th is is
very difficult to obtain in a large block of flats where many people with different
interests live together.
The Law on Divided Ownership of Buildings was enacted in 1962 to deal
with jointly owned buildings. This Law was extensively amended after the rapid
growth in the number of blocks of flats and other buildings in urban areas.¹⁶ It
applies to buildings which are divided into separate flats, shops, or storage rooms
owned by different persons. These buildings have individual as well as communal
parts. Individual parts are owned and used exclusively by an individual owner,
while communal parts are owned jointly by all or some owners. Although the
relationship involved in such buildings is basically joint ownership, provisions of
this law have priority over the provisions of the Civil Code on joint ownership.
An owner may not, in using or administering the building, do anything against
the common interest of the owners, such as acts prejudicing the preservation of
the building (Art. 6, para. 1). In cases where such acts have taken place, or are
likely to take place, other owners may take such action as is needed to prevent or
terminate those acts, or to remove their results (Art. 57, paras 1 and 2). In extreme
cases, other owners may request the court to sell the part owned by a particular
person by auction or order him to surrender it (Art. 59).
The decision-making body of the owners is the general meeting. Each owner
has votes in proportion to the size of his share, unless provided otherwise by the
charter (Arts 38 and 14, para. 1). Decisions of the general meeting and the charter
are binding on the owners and their successors in title (Art. 46, para. 1).
5. The Right to Use Another Person’s Property
There are four types of real rights which allow a person to make use of immovable
property which does not belong to him. These are: superficies, emphyteusis, servi-
tude, and commonage. Holders of superficies are entitled to use another person’s
land for the purpose of owning a building or trees (Art. 265). Provisions of the
new Law on the Lease of Land and Houses also apply to superficies. The 1966
amendment to the Civil Code introduced superficies for owning installations
under or above the land (Art. 269–2). In emphyteusis, a farmer rents land and
cultivates it or uses it for raising livestock (Art. 270). However, most farmers now
own their land, and this right therefore is no longer relevant.
¹⁶ Law No. 69, 1962.

Property Law 173
Commonage denotes a traditional right of the collective (village) to use land.

Provisions of ownership in common or servitude are applied to commonage,
depending on the nature of the commonage in question. Local custom supplements
the Code (Arts 263 and 294).
Today, the lease is the most common form of using other people’s property
in built-up areas. A large proportion of housing in major cities is comprised of
either rented flats or rented houses. Buildings are often built on rented property.
Legally, such arrangements can be either leases or superficies, but owners prefer
leases, because holders of superficies are in a stronger position against the owner
than are lessees.
Rights based upon a lease are not ‘real rights’ in terms of the Civil Code. Leases
are provided for in Book Three of the Civil Code (the Law of Obligations) as one
of the typical contracts. In the Code the term ‘lease’ covers leases of both immov-
ables and movables. It is not surprising that the Civil Code provisions failed to
give sufficient protection for lessees of houses and land.
Since the enactment of the Civil Code, in the wake of industrial action
and social unrest, separate laws were adopted to supplement the Code and to
strengthen the protection of lessees of houses and land. These are the Law on
the Protection of Buildings, the Law on the Lease of Land, and the Law on the
Lease of Houses.¹⁷ A new law, the Law on the Lease of Land and Houses, which
integrates those three laws with some amendments, was adopted in 1991.
There are some problems with the provisions on lease in the Civil Code. The
first problem concerned the means of publicity. The Code provides that if a
lease of immovables is registered, the lessee may claim his right against anyone
subsequently acquiring real rights over the property (Art. 605). In practice, regis-
tration of a lease is difficult, since the lessor has no obligation to cooperate with
the lessee in registering the lease. Only real rights can serve as a basis for requiring
cooperation, and a lease is not one of them.
The Law on the Protection of Buildings had a provision which strengthened
the lessee’s position. It enabled a lessee or a holder of superficies who owned a
registered building on the land to assert his rights against a new owner of the
land without registration (Art. 1). It should be noted here that the ownership of
land and the building which stands on it can belong to different persons. This
provision is now incorporated in the new Law on the Lease of Land and Houses
(Art. 10, para. 1). If the lessee of a house was actually given possession of it, he
is entitled to assert his right as lessee against a new owner of the house without
registration (Art. 31, para. 1).
The second problem with the provisions on lease in the Civil Code concerned
renewal of lease. The Civil Code is silent, but restrictions on the lessor’s freedom
to refuse renewal in the lease of houses and land were introduced by separate
statutes as well as case law. The Law on the Lease of Land and Houses provides
¹⁷ Law No. 40, 1909, Laws No. 49 and No. 50, 1921.
that if the lessee required renewal of the lease, the lease is deemed to have been
renewed under the same conditions as before, provided that the building owned
by the lessee is still there, and that the lessor did not object in a timely manner
(Art. 5, para. 1).
The lessor is entitled to refuse renewal only when there is a justifiable ground
(Arts 6 and 28). The Law provides for the following factors to be considered in such
cases: (i) the reason why the lessor and lessee need the property; (ii) circumstances
and facts relevant to the agreement (e.g. the amount of rent); (iii) the purpose and
use of the property (e.g. whether it is for housing or business, whether the property
is in good shape or not); and (iv) any financial offer made by the lessor. At the time
the Law was being discussed, property developers proposed the inclusion of the
necessity of using the land in a more effective way (e.g. for the redevelopment of
the area) as a justification, but this was not accommodated in the Law.
The new Law did not change the scope of justifiable grounds for refusal. It
merely incorporated the existing court practice. On the other hand, based on the
view that excessively strict control over the lessor’s refusal to renew leases could
inhibit the effective use of land and the supply of housing in urban areas, fi xed-
term leases which are not renewable were introduced (Arts 22 and 38, para. 1).
For instance, if the owner of a house is unable to live there for a certain period
because he has been transferred abroad by his employer, but it is apparent that
he would want to live there on his return, he may enter into a lease which is not
renewable.
6. Real Securities
Book Two of the Civil Code also contains provisions on real security. There are
four types of statutory real security rights: right of retention (ryūchi-ken), pref-
erential right (sakidori-tokken), pledge (shichi-ken), and hypothec (teitō-ken). In
addition, various statutes provide for real security, such as the Law on Security
over Enterprises and the Law on Hypothec over Factories.¹⁸ There are also types
of real security which have developed out of practice and have been endorsed
by the court. These real securities, which are denoted as atypical real securities,
include, inter alia, proprietary securities and retention of title. Some of them later
found legal basis in the Civil Code and other laws.
A person who is in possession of another person’s property may retain the
property until the latter performs the obligation owed to the possessor involv-
ing that property (Art. 295). The right of retention arises only in cases where
the creditor already has possession of the property. The property need not be
movable. The obligation secured by the right of retention must have arisen in
relation to the retained property. This relationship between the obligation and
¹⁸ Law No. 106, 1958 and Law No. 54, 1905.

Property Law 175
the property retained is not required in the Commercial Code. Merchants are
entitled to retain property received in a commercial transaction in order to secure
payment of any debt arising from such transactions (Art. 521).
In cases provided for in the Civil Code or other laws, a creditor is granted a
preferential right to secure payment, either from a specified property or assets of
the debtor in general, in preference to other creditors. Such preferential rights
arise automatically when certain conditions are met. Someone with a preferen-
tial right may demand that the property be auctioned and that his right arising
from the obligational relationship satisfied from the proceeds of the auction.
For example, employees’ wages are secured by a preferential right over all the
employing company’s assets. If the company goes bankrupt and its assets are
auctioned, employees have a preferential right to six months’ wages out of the
proceeds (Art. 306).
In contrast to preferential rights and the right of retention, generally, pledge
and hypothec are created by agreement between the parties. A pledgee is enti-
tled to possession of the property pledged to him, and in case of the pledgor’s
default the pledgee may have the property auctioned (Art. 342). The actual trans-
fer of possession to the pledgee is required for the creation of a pledge (Art. 344).
Pledges are not limited to movables; immovables, securities, and intellectual
property rights can also be pledged (Arts 356 and 362).
The pledgee is entitled to demand the sale by auction of the property; on the
other hand, he is prohibited from acquiring ownership over the property without
going through the formal enforcement procedure (Art. 349). This is designed to
prevent the pledgee from obtaining excessive profit from the collateral. However,
this restriction is removed in the Commercial Code. In commercial pledge, par-
ties to commercial transactions may agree that title to the collateral shall transfer
to the creditor in the case of default by the debtor (Art. 515).
Whereas pledgees have possession of the property, in hypothec possession of
the property is not transferred to the obligee. Both the title to and possession of
the property remain with the person who hypothecated it (Art. 369). Therefore,
the hypothecary debtor may borrow money while continuing to use the property.
Hypothecary creditors may not repossess the collateral without recourse to the
court.
A special kind of hypothec, which had developed in practice and was acknowl-
edged by the courts in the pre-war period, was incorporated into the Civil Code in
1971. This is called the base hypothec (neteitō) and secures unspecified obligations
within a fixed limit. When the obligation in ordinary hypothec is fulfilled, the
hypothec is extinguished. In a base hypothec it does not extinguish, but covers
future obligations whenever they arise. It is designed primarily to secure payments
relating to a long-term supply contract between merchants, and current account
agreements between a bank and a customer, both up to an agreed amount.
The Code limits the object of hypothec to ownership of immovables and super-
ficies and emphyteusis over land. This is because there is no way to publicise the
existence of a hypothec over movables. If hypothecs over movables were allowed,
the interests of those who purchase movables could be harmed. However; since
the enactment of the Civil Code, the necessity of hypothecs over certain categories
of movables, or group of movables and immovables, has increased. This led to the
enactment of laws such as the Law on Hypothec over Automobiles, the Law on
Hypothec over Factories, and the Law on Securities over Enterprises.¹⁹ Corporate
bonds can be secured by the entire assets of the company.²⁰
A creditor who has a hypothec over property receives payment from the
proceeds of its sale by auction in preference to other creditors should the debtor
default. The existence of a hypothec is publicised by means of registration.
Without registration, the creditor who has a hypothec cannot assert his rights
against another hypothecary creditor or any purchaser of the property.
Situations where several hypothecs exist over one and the same property are
not rare. Priority between different hypothecs is decided in accordance with the
order of registration, i.e. a creditor who registered earlier has priority over others.
When a hypothec which has priority is extinguished, the hypothec of the next
rank is upgraded.
It is common for land and buildings attached to land to be treated as
different things in Japan. Hypothec over land does not cover buildings on it,
nor does hypothec over a building have effect over the land. Th is causes a prob-
lem when either the land or the building is hypothecated and sold by auction
to a third party. The Code provides for statutory superficies, which is unique
to Japanese law. When land or a building attached to it, both of which belong
to the same person, is hypothecated and then purchased by a third person at
auction, a statutory superficies is deemed to have been created for the building
(Art. 388).
Real rights to use immovables, which were registered after the hypothec,
extinguish once the hypothec is enforced. However, there was an exception
in which short-term leases of less than five years for land and three years for
buildings were not extinguished, even though they were registered after the
hypothec. However, in practice this can be abused by the owner of the immov-
able in order to obstruct the creditor in the exercise of his rights. The system
protecting a short-term lease of land was abolished as a result of the amendment
to the Civil Code in 2003.²¹
Another problem regarding hypothec was the right to discharge the hypothec
of a third party who has obtained ownership, superficies, or emphyteusis over the
hypothecated property. These persons are entitled to offer the hypothecary cred-
itor a sufficient amount of money in exchange for the discharge of the hypothec.
¹⁹ Laws No. 187, 1951, No. 54, 1895, and No. 106, 1958.
²⁰ Law No. 52, 1905.
²¹ H. Dogauchi et al., Atarashii Tanpo • Shikkō—Seido (The New System of Real Security and
Enforcement) (Tokyo, 2003), pp. 74–77.
Property Law 177
If the hypothecary creditor(s) considers this amount to be insufficient, he may

demand auction within a month. The creditor was under an obligation to pur-
chase the property himself, unless the property was sold at auction at a price more
than 10 per cent higher than the price offered by the third party.
This right of the person who acquired the hypothecated property to discharge
the hypothec comes from French law. The problem is that under this system
hypothecary creditors are forced to initiate the auction procedure at a time which
may not be desirable for them, or to accept a relatively low price for the property.
This is often unfair to secured creditors, and therefore its abolition was proposed.
As a result, some laws providing for specific hypothecs no longer incorporate this
system of discharge.
By the 2003 amendment to the Civil Code, the system of discharge under-
went significant changes. The person who is entitled to request discharge is now
limited to a third party who acquired ownership to the property. The obligation
on the part of the hypothecary creditor to purchase the property at a price of
10 per cent more than the offer by the third party was abolished.
7. Atypical Real Security Rights
The Civil Code provides for only the above four real securities. However, other
types of securities, denoted as atypical real securities, have developed in prac-
tice. Concerning real security rights by way of provisional registration, a separate
statute was adopted in 1978, but other atypical rights remain without statutory
basis.²²
These atypical securities have developed in order to fill the gaps in the Civil
Code that were thought to be impractical for commercial transactions. A major
shortcoming of the Code is that it does not provide for any means of security over
movables which allows an owner/debtor to use the property until he repays the
debt. Hypothec on movables is not acknowledged by the Code; a pledge is pos-
sible, but in pledge the owner is deprived of possession of the collateral. Atypical
security rights are designed to secure a loan while allowing the debtor to continue
using the property.
Another shortcoming of real security rights is the cumbersome and often costly
enforcement procedure provided in the Civil Code. By using atypical securities,
a creditor can avoid the formal enforcement procedure, and secure payment by
selling the object or acquiring it himself. Furthermore, if there are many creditors,
atypical security rights may provide a better and easier way of ensuring priority of
payment.
²² Law No. 78, 1978.

On the other hand, atypical security rights have disadvantages in that they
often unfairly benefit the creditor at the expense of debtors and the others. The
courts have tried to avoid such unfair results by developing a body of case law.
The first type of atypical security rights involves the sale of property to the
creditor. By this arrangement, the parties do not intend to effect a genuine sale,
although there appears to be a contract of sale. The debtor sells a property to
the creditor, who promises to let the debtor repurchase the property once he
repays the debt (an option to repurchase). Alternatively, the creditor may agree to
redemption; if the debtor repays the debt then the debtor is entitled to rescind the
contract of sale and have the property returned.
In a recent case involving a sale with an option to repurchase the object, the
Supreme Court ruled that if it is a genuine sale, it normally entails the trans-
fer of the possession of the property from the seller to the buyer. If such a con-
tract is not accompanied by the transfer of possession, the contract should be
presumed to have been concluded for the purposes of securing a loan unless there
are special circumstances, and should be characterised as a contract of atypical
real security.²³
The second type of atypical security rights is effected by the conditional
assignment of ownership, combined with a loan agreement. The assignment of
ownership becomes final when the debtor defaults. As a variation, the parties may
agree to substitute performance: if the debtor defaults he is obliged to assign the
ownership of the collateral to the creditor as a substitute.²⁴
Options for repurchase and substitute performance involving immovables can
be registered as provisionary. Securing a debt by way of provisionary registration
developed out of practice, and was embodied in law by the Law on Contracts of
Security by Provisional Registration.²⁵
Technically, some atypical security rights seem to contradict provisions of the
Civil Code. For instance, security by way of assigning the title to a movable is
contrary to the provision in the Code which prohibits the pledgee from agreeing
in advance to acquire ownership of the collateral (Art. 349). Furthermore, only
those real rights which have a basis in the Code or other laws are acknowledged
(Art. 175). However, the court felt it desirable to overcome these limitations and
to give legal substance to atypical security rights.
Previously, a creditor whose right was secured by an atypical real security right
was entitled to receive full ownership of the property, regardless of its value. Hence
the creditor could acquire ownership of a property with a much higher value than
that of the loan. However, this was thought by the court to be unfair. It is now
²³ Judgment of the Supreme Court, 7 February 2006, Minshū 60-2-480.

²⁴ For detailed discussion on atypical security rights, see R. Suzuki, Bukken-hō Kōgi (Lectures on
Property Law), 5th edn (Tokyo, 2007), pp 344–399.
²⁵ Law No. 78, 1978.
Property Law 179
established case law that the difference between the amount of the secured loan
and the price of the property should be returned to the debtor.²⁶
In addition to the above-mentioned atypical securities, in order to secure the
payment of sales of goods via installments (hire purchase in English law) retention
of ownership is commonly used.
²⁶ See for example, the judgment of the Supreme Court, 25 March 1971, Minshū 25-2-208.
9
Law of Torts
1. The Development of Tort Law
Provisions on tort liability are found in Book Three, the Law of Obligations, of
the Civil Code. This categorisation is shared by the German and French Codes,
where tort falls under the law of obligations.
The section of the Civil Code which deals with tort liability starts with a
general provision (Art. 709):
A person who intentionally or negligently violates the rights of others shall be liable for
the loss caused by the act.
Provisions concerning non-pecuniary loss, the liability of minors, vicarious liability,
contributory negligence, and other matters follow this general provision.
This way of setting out tort law is common in Continental legal systems. In
fact, the Japanese Code is close to the French Code which has a single general
provision on tort liability, rather than to the German Code which has three basic
provisions which define the grounds for tort liability.
At the time when the Civil Code was enacted, tort liability was mostly limited
to cases between individuals. However, subsequent social changes led to the
emergence of new types of torts. There are pollution cases and product liabil-
ity cases, where tortfeasors are major companies and the loss is widespread. The
development of technology made atomic energy and various highly hazardous
materials available. There are also medical malpractice cases.
In 2007, of the 140,086 civil cases involving monetary claims accepted at the
district court level, there were 483 cases of claims for compensation for defective
buildings, 927 cases of medical malpractice, and 36 cases of claims arising from
pollution.¹
Despite the social changes since the enactment of the Civil Code in 1896, pro-
visions regarding tort liability in the Civil Code have remained unchanged. These
provisions, especially the general provision of Article 709, were made intentionally
abstract in order to give sufficient discretion to the courts in their interpretation.
This enabled the courts to cope with newly emerging problems such as pollution.
¹ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DMIN16~19.PDF>.

Law of Torts 181
In fact, it is not an exaggeration to state that judgments, not only of the Supreme
Court but also of the lower courts, have played a major role in forming the mod-
ern Japanese law of tort. One example is the judgments of the lower courts in
the celebrated four major pollution cases where victims who suffered as a result
of serious pollution sued the companies which had allowed the escape of toxic
substances. These judgments, although given by lower courts, introduced new
concepts such as ‘epidemiological causality’, which in fact reduced the burden of
proof for the plaintiff.²
There are some special laws pertinent to tort which should be mentioned here.
The first is the Law on the Compensation of Losses arising from Car Accidents,
which was enacted in 1955. This imposes liability on the owner or possessor of a
car involved in an accident, regardless of whether he was the driver or not. This
almost amounts to strict liability. This Law also introduced the system of man-
datory insurance. Secondly, laws concerning pollution control enacted in the
late 1960s and early 1970s, incorporated provisions for strict liability. Thirdly,
the Law on the Compensation for Loss caused by Nuclear Energy also intro-
duced strict liability. Fourthly, the Law on the Remedies of Harm Caused to
Human Health by Pollution which was enacted in 1973 is of significance.³ This
Law accommodates a new system in which those who suffer from designated
diseases caused by air or water pollution in particular regions are entitled to have
their hospital costs, the cost of supporting a family, and other expenses paid
from a general fund contributed by the companies considered to have caused
such pollution. Victims are not required to individually prove the liability of the
companies. It is sufficient if they are certified as victims of a disease designated
by the governor of the prefecture. Finally, the long-awaited Law on Product
Liability was enacted in 1994.⁴
2. General Rules of Tort Law
Traditionally, it has been considered that there were four elements which
constitute tort. Firstly, the tortfeasor should be at fault: i.e. he acted either with
intent or negligently. Secondly, the act has to be unlawful. Thirdly, a causal link
should exist between the tortious act and the loss. Finally, loss should have been
incurred.
These elements of tort are almost parallel to the elements which constitute a
crime under the theory of criminal law in Japan as well as in Germany. In criminal
law, an act is punishable when (i) the person in question has acted intentionally
² J. Gresser et al., Environmental Law in Japan (Cambridge, Mass., 1981), pp. 128–130. See
also K. Fujikura, ‘Litigation, Administrative Relief, and Political Settlement for Pollution Victim
Compensation’, in D. Foote, Law in Japan; A Turning Point (Tokyo, 2007), p. 384ff.
³ Law No. 111, 1973. ⁴ Law No. 85, 1994.
or by negligence, (ii) the act is unlawful, (iii) causality exists between the act
and criminal damage, and (iv) the person is capable of bearing responsibility.
However, whether it is appropriate to transplant this framework into tort law
is now being questioned. Moreover, some academics maintain that these four
elements are not really independent. For example, if negligence is considered not
to be a psychological state of mind but instead a breach of duty to foresee or
to avoid the outcome of one’s act, it may not be different from the concept of
unlawfulness.
In principle, fault is a prerequisite of tort liability. The problem lies not with
intentional acts, but with acts arising out of negligence. Scholarly opinion was
divided as to whether negligence is a state of mind—lack of attention—or a
breach of duty. The latter seems to be the prevailing view today. Basically, there
are two approaches to defining negligence. One school of thought asserts that a
person should be considered negligent for his failure to foresee the loss which is
likely to occur from his act. The other school maintains that a person is negligent
if he fails to take measures needed to avoid and prevent the loss. In their view,
foreseeability is required, but in addition to the breach of the duty to foresee the
outcome of his act, there should be a breach of the duty to avoid the outcome.⁵
The court has adopted the second approach, considering negligence to be a
failure to avoid the result which was or should have been foreseen. In one case,
inhabitants who lived near a chemical plant sued the company for air pollution,
which caused damage to their crops. The Supreme Tribunal ruled that insofar as
the company had taken adequate measures to prevent the loss likely to occur in
the course of its operations, even if by chance loss was caused, the company was
not liable. In this case the result was foreseeable, but since the company had taken
measures to avoid the result, it was held not liable.⁶ In a more recent case, the
Supreme Court ruled that a driver does not have a duty to foresee that a car driv-
ing parallel to him would act contrary to traffic rules and accordingly take action
to prevent an accident.⁷ Thus, most court judgments take the position that even if
the tortfeasor had or should have foreseen the result of his act, he is not liable if he
fulfilled his duty to take measures to prevent and avoid loss.
At first sight, this approach by the courts may seem to narrow the liability of the
tortfeasor. However, the difference between the two approaches—one stressing
foreseeability and the other avoidability—can be very small if the duty to prevent
or avoid the result is interpreted broadly. In cases involving pollution in the 1960s
and 1970s the courts imposed a stricter duty on companies to avoid and pre-
vent the results of their actions and thus held them liable. In one case involving
serious loss of life by a toxic substance discharged into a river, the district court
ruled that if damage to human health is likely and unavoidable even though the
⁵ Y. Hirai, Saiken-Kakuron (Special Part of the Law of Obligations), vol. 2, (Tokyo, 1992),
pp. 25–28.
⁶ Judgment of the Supreme Tribunal, 22 December 1916, Minroku 22–2474 (Osaka Alkali case).
⁷ Judgment of the Supreme Court, 24 September 1968, Hanji 539–40.
Law of Torts 183
most advanced technology is utilised, it is the duty of the company to curtail or

suspend the operation of the plant.⁸ It should be noted that even in the above-
cited case involving air pollution, after the Supreme Tribunal had reversed the
case the lower court again ruled in favour of the plaintiff and acknowledged the
negligence of the company.
In some cases the court expects a person to perform a specific act to avoid
causing loss, and if he fails to do it, he will be liable. This often happens in med-
ical malpractice cases. In one case, a doctor administered a transfusion of blood
infected with syphilis. The doctor asserted that since he was shown certificates
stating that the donor was healthy and was not infected with syphilis, he had
good reason to proceed. The Supreme Court ruled that the doctor should not
have used the blood unless he had personally questioned the donor about the pos-
sibility of his being infected.⁹ In a case where a baby suffered from the after-effects
of an influenza vaccination, the Supreme Court ruled that the doctor had a duty
to question the patient as to his state of health in a clear and concrete way.¹⁰
The standard of care generally required is that of the reasonable man. While
the Code does not expressly provide for the standard of care, a concept similar to
the reasonable man is found in the General Part of the Law of Obligation (Art.
400). A person who is under a duty to deliver an item is bound to look after that
item with a standard of care equivalent to that of a ‘good manager’. Naturally, a
higher standard of care is required of those engaged in a profession which requires
expertise, or in some areas of industry such as pharmaceuticals and food process-
ing. Thus, the Supreme Court in the above-mentioned blood transfusion case
ruled that people engaged in a profession which deals with the life and health
of others are required to exercise the highest standard of care that is empirically
proved to be necessary. In a case where a toxic substance—PCB—was mixed into
rice oil in a food processing plant, the court acknowledged that the producer of
the substance, as a supplier to a food processing plant, was also under a high duty
of care.¹¹ A similar standard of care was required of a chemical company that
discharged waste water into a river.¹²
In a recent case, an architect and a construction company were found to be
liable for a defective building with cracks and insufficient reinforcement steels.
The Supreme Court ruled that they bore a duty of care for ensuring that the
building did not lack basic safety features in relation to the residents who are not
in a contractual relationship with them.¹³
8
Judgment of Niigata District Court, 29 September 1971, Hanji 642–96 (Niigata Minamata
case).
9
Judgment of the Supreme Court, 16 February 1961, Minshū 15-2-244.
¹⁰ Judgment of the Supreme Court, 30 September 1976, Minshū 30-8-816.
¹¹ Judgment of Fukuoka District Court, Kokura Division, 29 March 1982, Hanji 1037–14
(Kanemi Yushō case).
¹² Gresser et al., supra.
¹³ Judgment of the Supreme Court, 6 July 2007, Minshū 61-5-1769.
On the other hand, if a doctor has taken sufficient care in light of scientific
research and surgical knowledge concerning a given disease, i.e. he has used state
of the art procedures and equipment, and has satisfied the medical standards of
the time, he will not be liable. For example, in a case where a premature baby
suffered from retinal disease caused by oxygen treatment, the Supreme Court
ruled that the doctor was not liable, since his treatment was in accordance with
the current standard of academic opinion and surgical knowledge.¹⁴ However,
in a similar case 10 years later, the Supreme Court held that the hospital was
liable, presumably taking into account the advances made by medicine in the
meantime.¹⁵
The burden of proof that the tortfeasor acted negligently or with intent lies
with the plaintiff. However, in practice, if the plaintiff proves the existence of
certain relevant factors, fault on the part of the tortfeasor can be presumed, and
the defendant has to prove that he was not at fault. Thus, in a case involving after-
effects of an influenza vaccination, the Supreme Court ruled that the breach of
the duty on the part of the doctor could be presumed by his failure to question
the state of health of the patient properly.¹⁶
Since fault is a prerequisite of tortious liability, it presupposes the ability on
the part of the tortfeasor to make certain judgements. The Civil Code provides
that where a minor causes damage to another person, he is not responsible pro-
vided that he was not capable of recognising his responsibility for the act (Art.
712). The court has found a boy of 12 years old who discharged an air gun into
the face of another boy not liable.¹⁷ Furthermore, a person who, while mentally
unsound, causes loss to another person is not liable (Art. 713). Where the person
who perpetrated the act or omission is not liable, then the person responsible for
overseeing that person is liable, unless he proves that he did not neglect his duty
(Art. 714).
A problem arises when a minor is found responsible and thus liable for his
tortious act. The wording of the relevant provision seems to indicate that in such
cases, the persons in charge of overseeing him are not liable. If so, however, the
victim will be confused as to whether he should sue the minor or the person in
charge of overseeing him, since it is up to the court to decide whether the minor
was liable or not. Therefore, scholarly opinion has taken the position that the vic-
tim is entitled to claim damages either from the tortfeasor or from those in charge
of overseeing those individuals (a minor or a person who is mentally unsound) on
the general ground of tortious liability (Art. 709). According to the proponents
of this view, the essence of Article 714 is that the person in charge of overseeing
the minor is exempted from liability if he proves that he did not neglect his duty.
It is not designed to exclude the possibility of claiming damages from a person in
¹⁴ Judgment of the Supreme Court, 13 November 1979, Hanji 952–49.

¹⁵ Judgment of the Supreme Court, 26 March 1985, Minshū 39-2-124.
¹⁶ Judgment of the Supreme Court, 30 September 1976, Minshū 30-8-816.
¹⁷ Judgment of the Supreme Tribunal, 30 April 1917, Minroku 23–715.
Law of Torts 185
charge of overseeing a minor or mentally unsound person on the general ground

of tortious liability.
The Supreme Court accepted this argument in a case where a paperboy was
killed by a minor aged 15, and robbed of the money he had collected. The mother
of the boy sued the minor and his parents as co-tortfeasors, and claimed damages
for future anticipated earnings and non-pecuniary loss. In this case, the tort-
feasor’s parents had failed to teach him the basic rules of social behaviour and
allegedly taught him to take evasive action when he was caught for shoplifting.
The Supreme Court ruled that, even where the minor can be held liable, if there
is ‘adequate causality’ between the loss on one hand and the neglect of duty on
the part of those overseeing him on the other hand, they are liable on the general
grounds of tortious liability.¹⁸
The second requirement for tort is the unlawfulness of the act. The Code pro-
vides that tort is a violation of the rights of a person. The prevailing view among
academics is that, in interpreting this provision, one should not be concerned
about the extent to which the right in question is recognised. Instead, they assert,
the ‘unlawfulness’ of the act is decisive. This ‘unlawfulness’ is not explicitly pro-
vided by the law. It is not equivalent to illegality or breach of law, although they
may overlap. The unlawfulness of the act is decided by balancing the nature of
the interest which was violated and the mode of the tort. For example, where pol-
lution or public nuisance exceeds the limit tolerable by the victims, it is regarded
as ‘unlawful’.¹⁹ If the infringed interest is significant, even a slight contravention
of law or breach of duty may result in liability; if the interest is not so signifi-
cant, a major violation of law is required to establish liability. In essence, the
remedy is not to be limited to cases where a right in the strict legal sense has been
infringed.
The court initially took the position that infringement of a certain right had
to exist, and rejected a claim for the violation of an author’s rights by a trad-
itional story-teller, since it was not covered by copyright law.²⁰ However, the
court changed its position ten years later and ruled that ‘rights’ in the context of
Article 709 do not have to be rights in a strict sense. It is sufficient if such an inter-
est is considered to deserve protection under tort law.²¹ Since then, the court has
interpreted the violation of rights fairly broadly. Remedies were provided in cases
such as breach of common law marriage, deprivation of sunshine by an adjacent
building, defamation, breach of privacy, and other cases where ‘interests’ which
cannot necessarily be regarded as rights in a strict sense, have been infringed.
Scholarly opinion which replaced the concept of infringement of rights with
the concept of unlawfulness was instrumental in making remedies available for
¹⁸ Judgment of the Supreme Court, 22 March 1974, Minshū 28-2-347.

¹⁹ I. Kato, Fuhō-kōi-hō (Tort Law), supplemented edition (Tokyo, 1980), p. 36.
²⁰ Judgment of the Supreme Tribunal, 4 July 1914, Keiroku 20–1360 (Tōchūken Kumoemon
case).
²¹ Judgment of the Supreme Tribunal, 28 November 1925, Minshū 4–670 (Daigaku-yu case).
a broader range of acts. It has also helped tort law to avoid the all-or-nothing
approach inherent in the rigid interpretation of the law by taking into account
various factors relevant to a specific case and balancing them. However, whether
this concept of unlawfulness is really needed in order to achieve equitable results
is now being questioned. It is pointed out that if the concept of ‘rights’ in the
context of Article 709 can be interpreted broadly, there is no need to resort to the
concept of unlawfulness. The concept of unlawfulness derives from the doctrine
developed in Germany. However, the structure of the provision is different in
the German Code, and the appropriateness of resorting to this doctrine in inter-
preting the Japanese Code is questionable. Furthermore, the courts do not neces-
sarily resort to the concept of unlawfulness to reach a decision. It has been argued
that in practice this concept is not used as a positive element of tort.²²
The third requirement is a causal link between the tort and the loss. Two
different matters have been discussed in this respect: (i) the causal relationship
between the act and the loss, and (ii) the scope of loss to be compensated. As
to the first problem, the plaintiff bears the burden of proof in demonstrating
the existence of a causal relationship between the tortious act and the result.
Th is arrangement seldom causes a problem in cases where the causal link is
clear, such as in a typical traffic accident. However, in pollution cases, and
cases involving medical malpractice or product liability, this may disadvantage
the plaintiff, who lacks the highly technical knowledge required to prove causal-
ity. In some cases the loss may accrue gradually over decades, and it is almost
impossible for the victim to prove that the loss was caused by a specific act.
Therefore, theories have been developed to make it easier for such victims to
prove causality. It was proposed, for example, that in pollution cases it should
not be necessary to prove a causal link with high probability, and that a mere
probability is sufficient.
In fact, the court has sometimes alleviated the burden of proof. One example is
the judgment of the district court in the celebrated Itai-itai case, which involved
a number of victims suffering impaired health through effluent discharges from
factories into the river. The court ruled that the causal link between the toxic sub-
stance and the disease did not have to be proved beyond any doubt. It is sufficient
to prove the ‘epidemiological causality’ between the damage to health and the
discharge. More specifically, the court ruled that the following factors had to be
proved: (i) that the discharge of the polluting substance preceded the outbreak
of the disease; (ii) that increased exposure to the substance resulted in increased
occurrence of the disease; (iii) that areas where pollution was not serious were
associated with low occurrence of disease; and (iv) that epidemiological data do
²² E. Hoshino in I. Kato (ed.), Nihon Fuhō-Kōi-Hō no Restatement (Th e Restatement of Japanese

Tort Law) (Tokyo, 1988), pp. 37–39. For the summary of the debate, see T. Uchida, Minpō II
Saiken-kakuron (Civil Law II, Special Part of the Law of Obligations), 2nd edn (Tokyo, 2007),
pp. 336–341.
Law of Torts 187
not contradict the clinical or experimental evidence.²³ In a similar case, a district

court ruled that if the substance causing the disease is specified and can be traced
from the victim to the factory and supported by circumstantial evidence, it is for
the company to prove that its factory had not created the substance in its production
process or emitted the substance.²⁴
However, it was not necessarily clear how the alleviation of the burden of proof
in limited categories of cases can be legally justified. Therefore, another theory,
known as the doctrine of indirect counter-proof, and based upon a doctrine of
civil procedure, has developed. According to this theory, if the victim proves the
existence of facts which are regarded as ‘intervening facts’, and if the causal link
between the act and the loss can be empirically presumed from these facts, then
the existence of a causal link should be confirmed, unless the defendant proves
the existence of facts indicating otherwise.
The Supreme Court appears to have adopted this approach. In one case, a child
who suffered from bone-marrow disease was injected with penicillin. The child
had a convulsive fit and suffered after-effects. The parents sued for damages. The
district court rejected the claim on the ground that the doctors were not at fault,
and the High Court supported this conclusion, since it was not certain whether
the after-effects were caused by the bone-marrow disease itself or by the injec-
tion. However, the Supreme Court quashed the judgment of the High Court and
reversed the case.
In this judgment, the Supreme Court discussed the standard of proof as regards
the link between the act and the loss. The Court ruled that unlike a proof in nat-
ural science, in the court causality is established if it is proven that there is a high
probability that a specific fact caused a specific loss in the light of experience. It is
satisfactory if the causality is proven to the extent that no ordinary person would
cast doubt on the conclusion. Concerning this particular case, the Supreme
Court acknowledged causality, since the convulsion happened suddenly a short
while after the injection, the possibility of this bone-marrow disease recurring is
normally low, and there were no other special circumstances which could explain
its recurrence.²⁵
Even when the requirements of fault, an unlawful act, causality, and loss are
fulfilled, there are instances where the perpetrator of the act or omission is not
liable. Firstly, when someone acts in defence of his or another’s rights against a
tort by a third person, he is not liable for loss caused (Art. 720, para. 1). Secondly,
when a tort is committed against the property of another person out of extreme
necessity to avoid imminent danger arising from this property, the perpetrator is
not liable for the loss caused to that property (Art. 720, para. 2).
²³ Judgment of Toyama District Court, 30 June 1971, Kaminshū 22–5/6–1. For epidemiological
causality, see Gresser et al., supra, pp. 128–130.
²⁴ Supra, Niigata Minamata case.
²⁵ Judgment of the Supreme Court, 24 October 1975, Minshū 29-9-1417.
In addition to self-defence and extreme necessity, the consent of the victim
may exempt a person from liability. Also, where an act is a legitimate exercise
of a right, then the perpetrator is naturally not held liable. For an example of
the latter, the Trade Union Law provides that workers are not liable for losses
caused by industrial action provided that it was within the limit of the law
(Art. 8).
3. The Scope of the Losses
The scope of the losses to be compensated has also been discussed as an issue of
causality. It has been maintained that out of the infi nite variety of losses which
are caused by a tort, only those losses linked by an ‘adequate’ causal relation
with the act will give rise to damages. Thus, when a car hits and injures a shop
owner, his family will suffer, his shop may have to be closed, and therefore the
employees may also suffer. Also the wholesale trader dealing with this shop
may be affected if the shop is to close. However, it is not always equitable to
require the tortfeasor to compensate all the consequential losses caused by
the tortious act. Therefore, it is necessary to limit, to a reasonable extent, the
scope of loss to be compensated. The doctrine of ‘adequate’ causal relationship
limits the scope of loss to be compensated to that which normally results from
a given tort.
This doctrine was based on a provision in the General Part of the Law of
Obligations in the Civil Code, which provides as follows (Art. 416):
The object of claims for damages is the recovery of the loss which would normally arise
from the non-performance of obligation.
Damages for loss arising from special circumstances may also be claimed, provided
that the parties had foreseen, or should have foreseen, those circumstances.
Technically, it is possible to apply this provision to tort, since the provisions of
this section are generally designed to apply to all kinds of obligation. However,
the current prevailing opinion is that this provision should not be applied to tort
because, firstly, it is inappropriate to require the foreseeability of specific circum-
stances in tort cases.
A study of the origin of this provision shows that it comes from French law via
English law. Yet the doctrine of the ‘adequate’ causal relationship was influenced
by German law. German law, in principle, requires the tortfeasor to compensate
all loss caused by his act. Since this may result in an excessive burden on the tort-
feasor, a theory for limiting the scope of damages had to be invented, and this
was the role of the doctrine of the ‘adequate’ causal relationship. However, the
Japanese Code does not expressly make the tortfeasor liable for all losses caused
by his act. Therefore, according to the recent prevailing view, this doctrine is not
as useful in Japan as in Germany, and may even be misleading.
Law of Torts 189
Instead, some lawyers suggest using the concept of the ‘scope of protection’.
They maintain that the scope of loss to be compensated is not determined by
foreseeability, but depends on the extent to which the law intends to protect
the right or interest. The matter does not have to be linked with the problem of
causality.²⁶
Although there is not that much difference in the actual outcome of these two
approaches, the traditional view demonstrates the way foreign legal doctrines
have been introduced into Japan. Since it was believed initially that German law
was the sole model of the present Code, academics at that time often introduced
German doctrines regardless of the actual differences which existed between the
German and Japanese Codes.
The court has held that Article 416 should be applied with modifications
to tort. The court normally uses the ‘adequate causality’ doctrine, and decides
whether a particular loss had an ‘adequate’ causal relationship with the act. In
one case, a close relative of a person injured in an accident returned from a foreign
country to take care of him. When the victim sued for the travel expenses, the
court ruled that if the need to return from foreign countries was justified in light
of common sense, this was a normal loss, and the defendant should meet the costs
of a normal fare.²⁷
Actually, the scope of loss to be compensated is a value judgment on the part
of the court as to whether the defendant or the plaintiff should bear the loss. It
is determined by taking into account various factors, such as the significance of
the right infringed, the amount of loss, and the mode of the tort. For example, if
the act was intentional and reckless, the amount of damages can be extended to
almost all loss, while if the damage resulted from mere carelessness, the scope of
loss may be more limited.²⁸
Losses can be divided into pecuniary and non-pecuniary loss. As for pecuniary
loss, both positive (actual) loss (for example the loss of property or a decrease in its
value) and negative loss (i.e. a loss of anticipated profit) are covered. Concerning
positive loss incurred on property, the court has held that damages should be
computed on the basis of the market value at the time when the object was lost
or damaged, unless there are special circumstances which should be taken into
consideration.²⁹ In cases of physical loss, hospital expenses, costs for medicine,
etc., these are covered insofar as they are reasonable and appropriate.
As for negative loss, the following leading case is pertinent. A merchant lost
his merchandise through a tortious act of another person. The merchant sued
this person and claimed that since the price of the merchandise had gone up
after the act, he had lost the opportunity to resell it and profit from the sale, and
²⁶ Hirai, supra, pp. 111–129.

²⁷ Judgment of the Supreme Court, 25 April 1974, Minshū 28-3-447.
²⁸ Hirai, supra, p. 126.
²⁹ Judgment of the Supreme Court, 31 January 1957, Minshū 11-1-170.
that the anticipated profit should be compensated as well. The Supreme Tribunal
applied Article 416 with modifications. The court ruled that such anticipated
profit should be compensated only when the victim has proved that there was
a special circumstance such that, had the tortious act not occurred, the victim
would certainly have made a profit from resale or other means, and that these
circumstances were or should have been foreseen at the time of the act by the
tortfeasor.³⁰
Anticipated profit is also at issue when physical harm or death of a person is
caused by tort. For example, if a person is disabled in a car accident, he is entitled
to claim damages for his lost income. Heirs are entitled to claim damages for the
loss of anticipated future income of the victim. As for the anticipated income of
the deceased, two basic methods of calculation are adopted by the court. At the
Tokyo District Court, in cases where the victim of a tort has died, the difference
between basic income and living costs is multiplied by the number of years which
the victim had been expected to work, i.e. the difference between the age at which
the victim would have retired and the age at which the victim died.³¹ Some adjust-
ments are made to reflect, for example, rises in income in accordance with age and
price increases.³²
Loss of anticipated income on the part of the deceased is also relevant when the
victim is a minor without a job, or a housewife without an income. For example,
if the victim was a baby, heirs may receive damages for loss of anticipated income
from the age at which he would have been expected to start working. The Supreme
Court has acknowledged that on the death of a small child, parents are entitled to
damages for the loss of anticipated earnings. The Supreme Court ruled that the
anticipated income of a child can be calculated by using statistical methods, and
therefore compensation for the anticipated income of the deceased child should
not be unconditionally ruled out.³³ As for housewives, the Supreme Court ruled
that damages should be calculated on the basis of the average income for female
workers until the age of retirement.³⁴
Compensation is generally paid as a lump sum. In cases of disability, there are
suggestions that compensation should be paid as an annuity, since the calcula-
tion is based upon various assumptions such as the average life span. On the other
hand, it is burdensome for the victim to ensure that the compensation is actually
paid annually. Therefore, at present payment by lump sum is the general rule and
annuities are the exception.
³⁰ Judgment of the Supreme Tribunal, 22 May 1926, Minshū 5–386 (Fukimaru case).
³¹ Y. Fukuoka, ‘Kōtsū jiko ni kansuru songai-baishō-soshō (Litigation for Damages for Traffic
Accidents)’, Jurist, No. 833, pp. 29–30.
³² Judgment of the Supreme Court, 27 August 1968, Minshū 22-8-1404.
³³ Judgment of the Supreme Court, 24 June 1964, Minshū 18-5-8574.
³⁴ Judgment of the Supreme Court, 10 July 1974, Minshū 28-5-872.
Law of Torts 191
Non-pecuniary loss is also compensated. The Civil Code provides as follows

(Art. 710):
A person who, on the basis of the preceding provision, is liable for damages of non-
pecuniary loss, irrespective of whether he has harmed the other person physically,
prejudiced his freedom, honour, or property rights.
There are no statutory guidelines as to the amount of non-pecuniary loss.
Damages are decided solely by the discretion of the court. In traffic accident
cases, however, some district courts have a standardised practice for calculating
non-pecuniary damages.
It is often pointed out that, since the amount of damages for non-pecuniary loss
can be flexible, the court supplements compensation for pecuniary loss with that
for non-pecuniary loss in order to reach a fair solution. This happens especially in
cases where the victim is a child or a housewife, since in these cases compensation
for pecuniary loss can be very low.
A related problem is the right of heirs to claim compensation for non-pecuniary
loss. The problem here is on what basis the family and relatives of the person
killed should receive compensation. The Code provides as follows (Art. 711):
A person who has caused the death of another shall be liable for damages for non-
pecuniary loss to the parents, spouse, and children of the victim, even if their property
rights were not affected.
In addition to the right to damages based on this provision, the court has main-
tained that the victim’s right to compensation for non-pecuniary loss is inherited
by the heirs. In a leading case, a person was injured in a car accident, and later
died. His brother, one of the heirs, sued the culprit claiming that he had inherited
the right to compensation for non-pecuniary loss. The Supreme Court ruled that
since the right to compensation is a monetary right it could be inherited. It should
be noted that the brother of the deceased was not entitled to compensation in
his own right under Article 711; only parents, spouse, or children are entitled to
damages by this provision.³⁵
The appropriateness of this approach which acknowledges that the claim for
compensation of non-pecuniary loss can be inherited is being disputed. The
primary aim of that solution is to protect the dependants of the deceased who are
not covered by Article 711 from economic difficulty. If this is so, the aim could
be achieved simply by acknowledging the heirs’ own right to compensation. This
solution may be more reasonable and fairer than the position taken by the court,
since it is not always reasonable to give compensation, especially for non-pecuniary
loss, to all heirs regardless of their relation to the deceased. It is far better to decide
³⁵ Judgment of the Supreme Court, 1 November 1967, Minshū 21-9-2249.

whether the rights of a specific person are infringed or not and whether the general
requirements of tort are met.³⁶
The Supreme Court applied Article 711 flexibly in a case where a sister of the
deceased, who was disabled and totally dependent on him, was granted com-
pensation on the basis of this provision.³⁷ Furthermore, despite the wording of
Article 711 which limits compensation to cases where the victim died, it was held
by the Court that this provision should be applied with necessary modifications
to other cases where the victim has suffered a severe injury. This is an example of
flexibility in the application of private law. The court sometimes deviates from a
provision when it is necessary to achieve an equitable result.
Another problem is the loss to a company by the death or disability of an
employee. The Civil Code does not have a provision defining the range of
persons entitled to sue, except for Article 711. A problem arises when the owner
or an executive of a company is killed or becomes disabled through a tort. In
one case the owner of a pharmacy was injured by a motorbike and as a result his
eyesight was severely damaged. The pharmacy was a limited company owned
by the victim; his wife was the sole member of the company. The victim sued
the defendant for non-pecuniary loss, while the limited company, the phar-
macy, sued the defendant for pecuniary loss: i.e. the decrease in sales resulting
from the injury suffered by the victim. The defendant argued that the company
was not entitled to damages, but the Supreme Court rejected this argument.
The Court ruled that since the pharmacy was an extremely small company
run primarily by the victim, and economically the victim and the company
were one and the same, there was a causal link between the tort and the loss to
the company.³⁸ Liability has been acknowledged by the court in similar cases
where the company was small and could be considered in economic terms to
be identical to the victim. Th is approach is supported by most academics, since
it is too harsh for a negligent tortfeasor to compensate for loss inflicted upon
larger companies.
The Civil Code provides for contributory negligence. When the victim is
at fault the court may take this into account when assessing the amount of
compensation. Since contributory negligence is a device to achieve a fair dis-
tribution of loss, fault in this sense does not have to be strictly interpreted. The
victim does not even have to be capable of responsibility. The court maintains
that it is sufficient if the victim had the ability to distinguish between right and
wrong. For instance, the court took into account the contributory negligence
of an 8-year-old boy in a traffic accident.³⁹
³⁶ I. Kato, Minpō ni okeru Ronri to Rieki-kōryō (Logic and the Balancing of Interests in Civil Law)
(Tokyo, 1997), p. 289.
³⁷ Judgment of the Supreme Court, 17 December 1974, Minshū 28-10-2040.
³⁸ Judgment of the Supreme Court, 15 November 1968, Minshū 22-12-2614.
³⁹ Judgment of the Supreme Court, 24 June 1964, Minshū 18-5-854.
Law of Torts 193
When considering contributory negligence, not only the negligence of the

victim himself, but also the negligence of those associated with the victim, such
as those responsible for overseeing the victim, is to be taken into account. Thus,
when a toddler was hit by a car while his mother was not looking, the mother’s
negligence was taken into account in assessing compensation.
4. Special Provisions on Tort Liability

Although Article 709, the general provision on tort, is based upon the principle
of fault, some provisions in the Civil Code are close to strict liability. Provisions
concerning the liability of parents and persons who have a duty to oversee the
mentally unsound, which have already been mentioned, are examples. A person
in charge of a minor is held liable for the latter’s acts, unless he proves that he was
not negligent. In practice, the courts seldom accept that they have not neglected
their duty.
Also relevant is the provision on the liability of employers for the act of their
employees. The Code provides as follows (Art. 715, para. 1):
A person who employs another person for his business is liable for the loss caused to
a third person by the latter in the course of business. However, if the employer proves
that he has taken reasonable care in selecting the employee and overseeing his work, or
that even with reasonable care the loss could not have been avoided, he is exempt from
liability.
The employer may claim indemnification from the employee after he has paid
damages to the victim.
The employer’s liability was initially seen as personal liability of the employer
for his negligence in selecting or supervising employees. The current prevailing
view is that Article 715 involves vicarious liability. Generally, the employer is pur-
suing profit by employing others, and should therefore be liable for loss caused in
the course of his business. The fact that the employer has opportunities to adopt
effective measures to prevent the loss-causing action is also considered as the basis
of this liability. ‘Business’ in this provision is not limited to commercial or profit-
oriented undertakings, so this argument alone cannot serve as a basis of liability
on the part of the employer.
The liability of the employer presupposes the liability of the employee. The
act of the latter has to fulfi l the requirements of tort: i.e. the employee has
to be either negligent or have acted intentionally, his act has to be unlawful,
and there has to be a causal link between his act and the loss. Recently, some
have proposed that fault by the employee should not be required in a certain
category of cases. It is pointed out that where companies are involved, for
instance in pollution cases, it is often difficult to specify which employee is at
fault. Therefore a strict requirement of proof of negligence on the part of the
employee may unfairly disadvantage the victims.⁴⁰ However, this remains a
minority view.
In order to pursue the liability of the employer, the act has to be committed in
the course of business. More specifically, the act of the employee which caused
the loss has to be within his competence or closely related to it. This becomes an
issue particularly when an employee abuses his position, acts out of self-interest,
and causes loss, for example, where an employee who is authorised to sign con-
tracts on behalf of the company abuses his position and transacts with a third
party out of his own interest. This is usually considered by the courts to be action
‘in the course of business’.
Initially, the court tended to interpret this clause narrowly and limited the
liability of the employer to cases where the act of the employee was ‘inseparable’
from the business of the employer. However, in the 1920s the court changed the
position and found employers more broadly liable. The leading case involved
a senior executive of the general affairs section of a company who abused his
power and issued share certificates. The company was found liable for his act.⁴¹
The Supreme Court places weight on the issue of whether the given act appeared
to be performed in the course of business. In another case, a manager of the
accounting department of a company abused his power, by using the signet of
the executive chairman and issuing a promissory note in the name of the com-
pany. The Supreme Court found that this was done in the course of business on
the ground that it appeared to a third party to be an act within the employee’s
power.⁴² In such cases, the court requires that at least the victim was not aware,
and was not seriously negligent in believing that the transaction was effected
in the course of business.⁴³ Thus, the crucial point is whether it was reasonable
for an average person in business to have assumed that the employee was acting
legitimately.
This conclusion is supported by the necessity of balancing the interests of the
employer, who had employed the person for his business, and the third party,
who believed that the tortfeasor was acting within his power. If the third party
knew that the tortfeasor was abusing his power, or was seriously negligent in
believing that he was acting within the scope of his power, the employer is not
liable.
The court uses the phrase ‘in the course of business’ fairly broadly in cases
other than business transactions. In one case, an employee of a car dealer killed
a person while he was driving a car which belonged to the company without
permission. The Supreme Court ruled that the act of the employee appeared from
the outside to be part of the employer’s business, taking into account the type
⁴⁰ S. Itoh, Fuhō-kōi-hō no Gendaiteki-kadai (Current Problems of Tort Law) (Tokyo, 1980),

p. 124ff. Uchida, supra, pp. 472–473.
⁴¹ Judgment of the Supreme Tribunal, 13 October 1926, Minshū 5–785.
⁴² Judgment of the Supreme Court, 16 July 1957, Minshū 11-7-1254.
⁴³ Judgment of the Supreme Court, 2 November 1967, Minshū 21-9-2278.
Law of Torts 195
and size of the employer’s business, and that it should therefore be considered to
have been performed in the course of the business.⁴⁴ It is questionable whether
the ‘appearance’ of the act should be crucial in cases other than those involving
business transactions, since in cases such as traffic accidents the victims have not
relied on ‘appearance’.⁴⁵
The Law on Compensation of Losses arising from Car Accidents has a provision
on the liability of those who provide a car to the driver.⁴⁶ Employers are covered
by this Law and are liable for loss caused by the driver even when the latter is not
negligent (Art. 3). In general, in cases involving the liability of the employer, the
defence that the employer had not been negligent in selecting or supervising the
employee is seldom accepted by the court.
Another provision of the Civil Code which has moved towards strict liability
is the provision on the liability of the owner of a building or a structure. If loss is
caused to another person due to defects in the construction or maintenance of a
building or structure on land, the person who possesses it is liable. If the possessor
proves that he had taken the necessary care to prevent such loss, then the owner
is liable (Art. 717). The liability of the possessor is based on fault, while the owner
bears strict liability. The rationale for this provision is that those who administer,
manage, or own a building or structure which is potentially dangerous to others
should take sufficient steps to prevent the occurrence of harm, and if loss occurs it
is fair to make those people liable.⁴⁷
Structures in this context include bridges, tunnels, roads, dikes, and lifts. The
Supreme Court acknowledged that a railway crossing was a structure within
the meaning of this provision and found that its owner was liable. In that case,
the safety devices installed were considered to be insufficient.⁴⁸ The loss must
arise from a defect in the construction or maintenance of the building or struc-
ture. If the loss would have occurred even without a defect, the loss is deemed
to arise from force majeure and this will excuse the possessor or owner from
liability.
A similar provision exists in the Law on Compensation by the State.⁴⁹ This
makes the State or other public entities liable for damages where loss is caused
by a defect in the construction or administration of roads, rivers, or other public
installations (Art. 2, para. 1). This provision does not require fault on the part
of the State or the public entity. If the installation does not meet the normally
required safety standard, it is regarded as defective. In one case, the Supreme
Court ruled that the State was liable for improperly maintaining the highway
when a driver was killed by a fall of rocks.⁵⁰ On the other hand, in a case where
⁴⁴ Judgment of the Supreme Court, 4 February 1964, Minshū 18-2-252.

⁴⁵ Hirai, supra, pp. 233–234. ⁴⁶ Law No. 97, 1955.
⁴⁷ Hirai, supra, pp. 223–228.
⁴⁸ Judgment of the Supreme Court, 23 April 1971, Minshū 25-3-351.
⁴⁹ Law No. 125, 1947.
⁵⁰ Judgment of the Supreme Court, 20 August 1979, Minshū 24-9-1268.
inhabitants who suffered flooding sued the State for improper maintenance of the
river, the Supreme Court considered various factors including budgetary limits,
and dismissed the claim.⁵¹
5. Joint Liability
The Civil Code has a provision dealing with tort committed by several persons
(Art. 719, para. 1):
In cases where several persons have jointly caused loss to another person by a tortious
act, each person is liable jointly and severally with the others. The same applies when it is
impossible to specify which of the joint perpetrators actually caused the loss.
The first part of this provision deals with joint tort liability. The most typical case
is where several persons injure somebody. Everyone who takes part in the act is
liable, even though not all of them have directly inflicted damage on the victim.
Fault is required of all the tortfeasors. A causal link must also exist between the
act of each person and the result, but this requirement is somewhat relaxed in
the prevailing scholarly opinion. It is sufficient if the act of each perpetrator is
‘related’ to the joint act which directly causes the loss. After all, if each perpet-
rator has to fulfil all the requirements of the definition of a tort, there is almost
no point in providing for joint tort liability in addition to the general provision
on tort.
The court does not require prior agreement, conspiracy, or a common intention.
It is sufficient if the act can be objectively regarded as being committed jointly.⁵²
Instigators and accomplices are considered to be joint tortfeasors together with
the principal and are jointly and severally liable for the loss.
Joint liability means that the victim may demand full compensation from
any one of the tortfeasors. Thus, the victim does not have to sue all the tort-
feasors, nor does he have to decide the proportion of liability amongst them
in order to demand compensation. Joint tort liability is designed to safeguard
the interests of victims. If one tortfeasor pays full compensation, he is entitled
to demand indemnification from the others in accordance with the extent of
liability.
Joint tort liability became an issue in pollution cases in the 1960s and 1970s. In
one case several factories discharged polluted air and caused local inhabitants ser-
ious bronchial problems. These factories formed an industrial complex in the area
and were closely connected with one another. The victims sued the companies
which formed the industrial complex. The district court ruled that even when the
act of each tortfeasor did not by itself cause loss, if it caused loss in concurrence
⁵¹ Judgment of the Supreme Court, 26 January 1984, Minshū 38-2-53 (Daitō Suigai case).
⁵² Judgment of the Supreme Court, 26 March 1955, Minshū 11-3-543.
Law of Torts 197
with other tortfeasors’ acts, all of them were liable. In this case, it was ascertained
that without each party’s act the loss would not have been caused. The court also
acknowledged that the defendants, who formed an industrial complex, were suf-
ficiently related to be made jointly liable.⁵³
The latter part of Article 719, para. 1 deals with cases where it is not known
which of the persons involved in the act is liable for the loss. It is presumed that
those who were involved caused the damage jointly. A defendant may refute
the presumption by proving that there was no causal link between his act and
the harm caused. For example, if three persons were smoking and a fire broke
out afterwards they are jointly liable even if it is not specified which of them
caused the fire. In one case, a person was injured in a car accident and later died
in hospital. The condition of the victim had deteriorated in the hospital due to
negligence on the part of a doctor. However, it was not known whether the acci-
dent or the malpractice was the real cause of the death. The court found both
the driver and the doctor liable for the death of the victim on the basis of this
provision.⁵⁴
6. Remedies
The remedy for tort is monetary compensation (Art. 722). The plaintiff may
also demand the restoration of the status quo ante in some cases. In libel cases
the court may order the publication of an apology together with compensation
(Art. 723).
As regards injunctions, there is no explicit provision in the Civil Code allowing
for injunctions. Where a real right has been infringed, an injunction is available.
For example, when someone is building a house on another’s property, the owner,
on the basis of his right of ownership, is entitled to an injunction. In fact, this
remedy is not based on tort law, but is regarded as an attribute of real rights.
Therefore, fault on the part of the trespasser is not required.
In some cases other than the infringement of real rights, injunctions are also
available. For instance, when there is an infringement of privacy, honour, or repu-
tation, it is asserted that an injunction should be made available on the basis of
the general right of personality, emanating from the Constitution, despite the
absence of an explicit provision in the Code.
For pollution and public nuisance cases, injunctive relief is needed, but its
availability and legal basis are a focus of discussion. Some experts broaden the
concept of real rights, while others resort to the notion of ‘general rights of
personality’ or ‘rights to a proper environment’ in order to justify injunctions.
⁵³ Judgment of the Tsu District Court, Yokkaichi Division, 24 July 1967, Hanji 672–30
(Yokkaiachi Pollution case).
⁵⁴ Judgment of the Tokyo District Court, 7 June 1967, Kaminshū 18–5/6–607.
The court has sometimes found that a property right of the plaintiff was infringed
and has granted injunctions. According to a study of cases between 1950 and
1980, there were 145 cases where injunctions were sought. In seventy-seven cases
the ground for seeking an injunction was not specified, and in twenty-nine cases,
the claim was based on real rights.⁵⁵
It should be added that interlocutory injunctions are used to achieve a goal
similar to that of injunctions. It is possible to ask the court to order a tempo-
rary freezing of the situation, or to suspend tortious activities. Since the mid-
1960s there have been cases where householders sued a developer to prevent him
from constructing a building which could limit their access to sunlight. In such
cases the court sometimes orders suspension of the construction until the case is
decided on its merits.⁵⁶
7. Product Liability
There was no special law on product liability in Japan until 1994. This is in con-
trast to some other jurisdictions including the European Union where special
legislation has come into force some years ago. The amount of litigation concern-
ing product liability was fairly small in Japan—less than 100 cases in total since
the Second World War. This is not to say that serious incidents where product
liability was at issue did not occur in Japan. On the contrary, there were cases
where toxic substances included in food caused serious harm to human health.
One case involved milk powder for babies containing arsenic, and another
involved rice oil intoxicated with PCB, both mentioned above. There were also
cases such as the Thalidomide case where, as a result of side-effects of a medicine,
newly born babies suffered. The problem of defective cars was also highlighted
some years ago.
Technically, product liability can be enforced using either contract law (Art.
415) or tort law (Art. 709). Differences are that (i) tort law requires fault on the
part of the tortfeasor which has to be proved by the plaintiff, while contract
law provides for strict liability and Article 415 lays the burden of proof with the
obligor-defendant; and (ii) contract law applies only between seller and buyer; it
does not extend to the manufacturer.
The liability of those who produced and marketed contaminated food or
medicine causing harmful effects was pursued primarily on the basis of tort law.
This was because the manufacturers’ and not the sellers’ liability was at issue.
However, it is often very difficult for an individual with limited resources to prove
causal links and fault. In the cases cited above the plaintiffs were successful, but
⁵⁵ For details, see M. Kato, in Nihon Fuhō-kōi-hō no Restatement, supra, pp. 75–83.
⁵⁶ T. Ikuyo, Fuhō-kōi-hō (Tort Law) (Tokyo, 1977), pp. 300–301.
Law of Torts 199
in these cases the harm was widespread and a number of people were involved.
Since the incident drew the attention of the general public, official bodies assisted
the plaintiffs in collecting the necessary information and providing evidence.
The court endeavoured to alleviate the burden of proof. Even with such support,
it took many years to reach the final settlement.
Individuals who suffer loss arising from defective home appliances or cars also
find it hard to prove the case against manufacturers. For instance, a television set
was suspected of being the cause of a household fire. Victims saw flames coming
out of a TV set, but the manufacturer refused to pay damages on the ground that
there was no causal link. The parties reached settlement on condition that the
name of the manufacturer not be disclosed.
In order to make matters easier for those who suffer loss from defective goods,
the enactment of the law on product liability has been proposed. In 1990 an advis-
ory committee to the then Economic Planning Agency published a report which
stressed the necessity of a new law. The Japan Federation of Bar Associations pub-
lished a draft law on product liability in the same year. Some were cautious about
the enactment of such a law, since in their view it could give rise to a flood of
litigation and excessive demands for damages. The Law on Product Liability was
finally enacted in 1994. It provides special rules in relation to the provisions on
general tort in the Civil Code. If there is no applicable provision in the Law, the
Civil Code is applied (Art. 6).
The Law deals with losses caused to the life, health, or property of a person by a
defect in a product (Art. 3). Products in this context denote movables which have
been produced, manufactured, or processed (Art. 2, para. 1).
The Law introduces non-fault liability. Instead of fault, the concept of defect
plays a major role. A product is defective if it lacks the safety which is normally
expected of such a product, taking into account the specific nature of the prod-
uct, the normally expected means of usage, the time of transfer of the product
to the user, and other circumstances related to it (Art. 2, para. 2). The burden of
proof that the product is not defective lies with the manufacturer.
If the loss could not have been foreseen in the light of the standard of science
and technology at the time of transfer of the product, then the manufacturer
is not liable. If the product contains parts, components, or material which are
themselves a product, and the defect in the final product emerged from the design
instruction of the manufacturer of the final product, manufacturers of the parts,
components, or material are not liable provided that they were not at fault for the
emergence of the defect (Art. 4).
While there were proposals to presume the existence of a defect, in the end this
presumption was not incorporated in the Law. Introduction of triple damages
was also proposed, but rejected.
Persons who are liable for defective goods are not limited to those who manu-
factured, processed, or imported products in the course of their business. Those
who allow goods to be marketed in their name or trade name or using their trade-
mark are equally liable. In addition, those who display their name on products so
that—taking into account the form of manufacturing, processing, importing,
or sale—it could be regarded as the name of the manufacturer, are also liable
(Art. 2, para. 3).⁵⁷
⁵⁷ For the Law on Product Liability, see Tokyo Fire and Marine Institute (ed.), Seizōbutsu-
Sekinin-Hō Taikei (Compendium on Product Liability Law), vol. 2 (Tokyo, 1998).
10
Family Law and Inheritance
Family law in Japan is embodied in Book Four of the Civil Code. Together with
Book Five which deals with inheritance, this part of the Code has undergone a
total change in the course of the post-war reform.
In the pre-war period, the family was dominated by the head of the family,
and was considered to be the basic unit of the entire system of the State. The
power was concentrated in the head of the family; other members of the fam-
ily were ‘protected’ by the head, but had no formal rights against him. The
head of the family had the power to designate the place where family members
should live, to control their choice of marriage partner, and ultimately to expel
them from the family. He had exclusive rights of control over the property of
the family. Family relationships were strictly hierarchical. Thus, children were
subordinate to their father, and the eldest son was the sole heir and enjoyed a
privileged status. Female members were considered inferior to males; the wife
had no legal capacity at all and was listed as an ‘incompetent’ in the Civil Code.
The Criminal Code had a provision punishing adultery which only applied to
wives.
It should be noted that this Confucian, male-dominated hierarchical ‘house
(ie)’ was considered to reflect the entire social system, at the top of which reigned
the Emperor. The idea that the Emperor was the benevolent father and head of
the entire Japanese family was promoted by the rulers in the period of modernisation
in order to ensure national unity.
The reform of family law was thought to be a priority after the Second World
War, because the family system in the pre-war period served as a basis of the
Emperor-centred political system. Preparations for amending the Civil Code
started almost simultaneously with the drafting of the new Constitution. The
reform of the family system did not proceed without opposition. Some Japanese
conservatives who took part in the drafting process defended the old ‘house’
system.¹
¹ T. Kawashima, ‘Americanisation of Japanese Family Law’, Law in Japan, vol. 16 (1983), p. 55.

The present Constitution preceded the amendment of the Civil Code by a
year. The Constitution incorporated a provision on family relations as follows
(Art. 24, para. 2):
With regard to choice of spouse, property rights, inheritance, choice of domicile, divorce
and other matters pertaining to marriage and the family, laws shall be enacted from the
standpoint of individual dignity and the essential equality of the sexes.
Family relations as provided by the amended Civil Code are entirely different
from those in the pre-war period. First, members of the family are now treated
as equals instead of being dominated by the head of the family. The previous
chapter of the Code on the ‘house’ and the head of the family has been deleted.
Secondly, the unequal status between the sexes has changed. Husbands and
wives and fathers and mothers now have equal rights to property as well as in the
upbringing of children. Thirdly, while before the war, the eldest son enjoyed priv-
ileges under the previous system as the sole heir, the amended Code provides for
equality among children. Finally, provisions concerning the lack of legal capacity
of wives were removed from the Code.
In 1996, after half a century of the post-war reform, in light of the social
changes, the Legislative Council, consulted by the Ministry of Justice, published
the Programme for the Partial Amendment to the Civil Code regarding family
law and succession. This programme accommodated the following proposals:
• increase of the eligible age for marriage from 16 to 18 for females;
• introduction of the choice of the same or separate surnames for the spouses;
• removing mental illness from the grounds for divorce;
• adding separation of the spouses for five years or more without disruption as a
ground for divorce;
• empowering the court to dismiss the claim for divorce, if the divorce results in
substantial impoverishment of the spouse or children, or intolerable pain, or is
against good faith;
• making the share of inheritance equal for legitimate and illegitimate children.
However, the proposal regarding the increase of the eligible age for females, enab-
ling of separate surnames for spouses, and the equal treatment of legitimate and
illegitimate children met with strong opposition from conservative quarters, and
as a result, the bill has failed to be submitted to Parliament.²
2. Marriage and Divorce
Book Four of the Civil Code is divided into five chapters: the General Part,
Marriage, Parents and Children, Parental Rights, and Guardianship.
² T. Nomura, ‘Heisei 8-nen Kaisei-Yōkō o yominaosu (Re-Reading the 1996 Programme)’,

Jurist, No.1336, pp. 2–4.
Family Law and Inheritance 203
While under the pre-war system, consent of the head of the family was required
for a marriage, marriage under the present law is solely based upon the agreement
of the parties. Marriage comes into effect by registration in accordance with the
Law on the Civil Status.³
The minimum age for marriage is 18 for males and 16 for females (Art. 731).
However, for those below age 20, parental consent is needed. If the views of the
parents differ, consent of either is sufficient (Art. 737). Minors acquire full legal
capacity upon marriage (Art. 753).
Those who are married may not marry again (Art. 732). Such an act—
bigamy—is an offence under the Criminal Code. Marriage between lineal rela-
tives by blood, or between collateral relatives by blood of up to the third degree
of relationship is prohibited (Art. 734, para. 1). For instance, an uncle may not
marry his niece, but cousins may marry. Furthermore, marriage between lineal
relatives by affinity is banned (Art. 736). A male may not marry his mother-in-
law, even after his marriage has been dissolved.
A provision in the Civil Code which prohibits a woman from remarry-
ing within six months of the dissolution or rescission of her previous marriage
(Art. 733) has long been a focus of controversy. This provision is intended to
avoid difficulties in determining the father of any child born after the dissolution
or rescission of the marriage. However, a child born after 200 days of marriage or
within 300 days of the dissolution or rescission of a marriage is presumed to have
been conceived during the marriage (Art. 772, para. 1). Therefore, theoretically,
a ban on remarriage for 100 days should suffice. There is a proposal to amend the
law to this effect which was accommodated in the 1996 Programme.⁴
The Civil Code does not have explicit provisions regarding engagement, but
it is an institution protected by law. The courts have maintained that a breach of
engagement without a justifiable reason entails compensation in either contract
or tort law.⁵ On the other hand, engagement to a married person in the expect-
ation that the marriage will be dissolved is void, since it is against public order
and good morals.⁶
The husband and wife must have a common family name. Under the previ-
ous Code, wives had to use the husband’s family name: now the spouses may
choose which family name to use (Art. 750). In recent years, this arrangement of
a common family name has come to be criticised, since it is disadvantageous for
the spouse who has to change his/her name. The 1996 Programme allows each
spouse to use their original surname, but the proposal met with strong resistance
from the conservative circle, and is yet to become law.
³ Law No. 224, 1947.

⁴ S. Yoshikai, ‘Minji-kihonhōno saikin no Rippōno Dōkō to Kadai (The Current State and
Tasks of Civil Legislation)’, Jurist 1999, vol. 1149, pp. 106–107.
⁵ Judgment of the Supreme Court, 11 April 1958, Minshū 12-5-789.
⁶ Judgment of the Supreme Tribunal, 28 May 1920, Minroku 26–773.
When the marriage has been terminated by the death of a spouse, the remain-
ing spouse may choose to use the family name before marriage. After a divorce, the
spouse may choose to continue using the family name used before the divorce.
A married couple have mutual obligations. They have a duty (not enforceable)
to live together and to support and cooperate with each other. A breach of the
duty to live together, cooperate, and support each other without justifiable reason
is a ground for divorce. In practice, due to the difference in the living and educa-
tional standards between urban areas and other parts of Japan, it is not unusual
for spouses with children to live separately.
The property of a married couple can belong separately to either spouse.
Property which belonged to one spouse before the marriage, or which the spouse
obtained in his or her own name during the marriage belongs to this spouse dur-
ing the marriage (Art. 762). Property whose ownership cannot be determined
is presumed to be jointly owned by the couple. This contrasts with the previous
system where the husband had control over the wife’s property.
The husband and wife may conclude a contract as to their property before
marriage (Art. 756). This contract cannot be altered after the marriage has taken
effect (Art. 758). In practice, such pre-nuptial arrangements are seldom effected
in Japan.
A problem arises when property is acquired in the name of one spouse, but the
other contributed to obtaining it. Such contribution is to be taken into account
when determining the distribution of property. This was contested in a case
where a husband and wife ran an inn inherited from the husband’s mother, but
managed by the wife and registered in her name. When the wife was divorced for
infidelity, she claimed that the land on which the inn was built belonged to her,
since it was registered in her name. The Supreme Court rejected this argument
and ruled that registration is not sufficient to determine whether the property
belonged to the wife.⁷ This judgment has been criticised since it failed to take into
account the contribution made by the wife in running the inn.
The cost incurred during the marriage are shared by husband and wife, tak-
ing into account their assets, income, and other circumstances (Art. 760). When
either spouse incurs debts in relation to daily household matters, they are jointly
liable (Art. 761). Daily household matters include the purchase of everyday goods,
contracts for medical treatment, and domestic rent.
Marriage is dissolved by the death of either party, a declaration of disappear-
ance, or divorce. Divorce is possible by agreement between the parties (Art. 763)
and there is no restriction on the ground for such divorce. When the parties fail
to reach agreement, a conciliation procedure is available. Even when the parties
intend to contest the case in a formal court procedure, the case must first go
through the conciliation procedure. Conciliation is conducted by the concili-
ation committee of the family court. The committee is composed of a conciliation
⁷ Judgment of the Supreme Court, July 14, 1959, Minshū 13-7-1023.

officer, who is a judge of the family court, and two conciliation commissioners.
Even when conciliation fails, the committee is entitled to grant divorce in the
form of adjudication by taking into account all the circumstances of the case.
This happens, for example, when the marriage has actually broken down beyond
repair but the parties fail to agree because of emotional reasons.
Divorce can also be effected via a formal court procedure. However, in Japan
most divorce cases are settled by conciliation or end with adjudication, and it is
rare for a divorce case to proceed to the formal procedure of personal status liti-
gation. Reportedly, ninety per cent of divorce cases are consensual, nine per cent
are effected by conciliation, and only one per cent go through the formal court
procedure.⁸
The divorce rate is not high in Japan compared to other countries. The rate is
4.7 per thousand inhabitants in the United States, 2.9 in the UK, and slightly
over 2 per thousand in Japan.⁹
The Civil Code lists five grounds for divorce by court procedure: infidelity,
desertion in bad faith, death, or life of the spouse being unknown for more than
three years, serious and incurable mental disease, and any other ground which
makes it impossible to continue the marriage (Art. 770, para. 1). Divorce on a
ground which makes the continuation of marriage impossible, i.e. where the
marriage has irretrievably broken down, includes cases such as a criminal convic-
tion, alcoholism, severe incompatibility, and maltreatment by parents-in-law. It
is considered to be impractical to force a couple to continue a marriage despite its
actual breakdown.
The court may refuse to grant a divorce notwithstanding the existence of one
of the grounds for divorce provided in the Code (ibid., para. 2). The Supreme
Court has refused to grant divorce in a case where the spouse was suffering
from mental disease. It ruled that unless sufficient arrangements were made
for medical treatment and the future life of the spouse, divorce should not be
allowed.¹⁰
Furthermore, there is a controversial line of cases to the effect that the party
responsible for the breakdown of the marriage cannot sue for divorce. There is
no statutory basis for this. The rationale is that a divorce at the initiative of such
a party may result in unfairness to the other party or children. In a leading case,
the Supreme Court refused to allow the divorce claim by a husband who had
left his wife and chosen to live with a pregnant mistress.¹¹ Th is has been relaxed
to a certain extent since then: the Supreme Court subsequently ruled that the
party ‘primarily’, but not solely, responsible for the breakdown of the marriage
8
A. Omura, Kazoku-Hō (Family Law), 2nd edn with Supplements (Tokyo, 2004), p. 41.
9
The ratio in Japan was 2.04 in 2006 in Japan: <http://www.mhlw.go.jp/toukei/saikin/hw/
jinkou/suikei06/index.html>.
¹⁰ Judgment of the Supreme Court, 15 July 1958, Minshū 12-12-1823.
¹¹ Judgment of the Supreme Court, 19 February 1952, Minshū 6-2-110.
was entitled to seek a divorce.¹² Therefore, the court came to grant divorces
even when sought by the responsible party, provided that sufficient financial
arrangements are made for the other party and that there are no children aged
under 20.
The Supreme Court explicitly changed its approach in 1987. In this case, a
couple had adopted two daughters. The husband actually had relations with the
birth mother of these two adopted daughters, and when this was revealed he began
to live with her. Husband and wife lived separately for more than thirty years.
The husband was well-off, but failed to support the abandoned wife, who had
no assets. The husband sought a divorce procedure, but the lower courts refused
to grant a divorce. The Supreme Court reversed the judgment and referred the
case back to the lower court. The Court ruled that when a couple has been liv-
ing separately for a sufficiently long period, has no young children, and there are
no special circumstances making a claim by the responsible party unjust, such a
claim for divorce should not be rejected.¹³ The 1996 Programme incorporated
this doctrine.
When divorce is granted, issues concerning the property of the parties and the
welfare of the children must be settled. The couple must also discuss the prob-
lem of which person should take custody of the children. If the parties fail to
reach agreement, the family court makes the decision (Arts 766, para. 1 and 771).
After divorce either party may claim distribution of property (Arts 768, para. 1
and Art. 771). This claim includes redistribution of matrimonial property and
payment of alimony, as well as damages for non-pecuniary loss. It is generally
accepted that the party responsible for the breakdown of the marriage is liable for
compensation based on tort law. Whether damages can be claimed together with
redistribution of matrimonial property and alimony has been a focus of discus-
sion. The Supreme Court allows the party to choose whether to claim damages
together with other claims or not.¹⁴
Distribution of property is made through conciliation proceedings, but if the
parties fail to agree the family court will adjudicate, taking into account ‘the
amount of property which has been obtained with the assistance of the spouse
and all other circumstances’ (Art. 768, para. 3). The Code has only two provi-
sions concerning matrimonial property and its distribution. Therefore, a wide
range of issues is left to the discretion of the family courts.
The contribution of a spouse in acquiring matrimonial property is often
difficult to assess, especially when only one member of the couple had an income.
The contribution of the wife through housework is generally taken into consid-
eration by the court. In some cases where only the husband had an income, the
house which the couple had acquired during the marriage was acknowledged to
¹² Judgment of the Supreme Court, 24 November 1955, Minshū 9-12-1837.

¹³ Judgment of the Supreme Court, 2 September 1987, Minshū 41-6-1423.
¹⁴ Judgment of the Supreme Court, 23 July 1971, Minshū 25-5-805.
be joint property by taking into consideration the non-monetary contribution of

the wife.¹⁵
Common law marriages were not unusual, particularly in the pre-war period,
because of the system which inhibited free marriage. The Supreme Tribunal
extended some protection to such marriages. It acknowledged that a common
law wife deserted by her common law husband was entitled to compensation
for breach of contract.¹⁶ Furthermore, a common law wife was allowed to claim
damages in tort resulting from the death of the common law husband.
Since the Second World War, the Supreme Court has treated common law
marriage as a quasi-marriage that should be treated in a similar way to formal
marriage. The court ruled, for instance, that desertion without justifiable ground
in a common law marriage constituted a tort.¹⁷ In financial arrangements also,
common law marriage is treated in a similar way to formal marriage. Thus,
spouses have the same mutual duties as in formal marriage. Matrimonial prop-
erty is distributed in the same way.¹⁸ In one case, a common law wife who ran
a cloth shop with her common law husband claimed rights over pieces of land
that the couple had obtained during the marriage. The land was registered in his
name. The court acknowledged the contribution of the common law wife and
ruled that the land belonged to them jointly.¹⁹ It should be added that in insur-
ance claims and pension rights, common law marriage is treated equally with
formal marriage.
A problem arises in common law marriage where one of the parties is formally
married to another person. Initially, the court ruled that this kind of relationship
had no legal effect. Later, the court changed its stance and now acknowledges
such common law marriage, provided that the extant formal marriage has irre-
trievably broken down.²⁰
3. Family and Children
A child born to a married couple is a legitimate child. There are presumed legit-
imacy and non-presumed legitimacy. A child conceived by the wife during the
marriage is presumed to be legitimate (Art. 772, para. 1). A child conceived after
200 days of marriage or within 300 days of the dissolution or rescission of mar-
riage is presumed to have been conceived during the marriage (ibid., para. 2). The
presumption of legitimacy can be reversed only by a court order sought by the
¹⁵ Judgment of the Sapporo High Court, 19 June 1986, Hanta 614–70.

¹⁶ Judgment of the Supreme Tribunal, 26 January 1915, Minroku 21–49.
¹⁷ Judgment of the Supreme Court, 11 April 1958, Minshū 12-5-789.
¹⁸ Decision of the Hiroshima High Court, 19 June 1963, Kōminshū 16-4-265.
¹⁹ Judgment of the Osaka High Court, 30 November 1982, Kagetsū 36-1-139.
²⁰ Judgment of the Supreme Tribunal, 8 April 1937, Minshū 16–418.
husband (Art. 775). The husband may initiate proceedings against the mother to
deny the legitimacy of the child.
Legitimacy is not limited to children conceived after 200 days of marriage. The
Supreme Tribunal acknowledged a child which was born on the day of marriage
to be legitimate where a common law marriage between the parents preceded the
formal marriage, although the child was not presumed to be legitimate.²¹
An illegitimate child can be legitimised either by the father or mother (Art.
779). The child may initiate an action against the father for legitimacy. This
action cannot be brought more than three years after the father’s death (Art.
787). A legitimised child has the same rights as other children, except that the
portion of inheritance is half that of legitimate children. This arrangement has
been contested in court for its constitutionality.
Family relationship can be created by adoption. There are only three legal
requirements for adoption. The adopter has to be over 20 years of age, the person
to be adopted must be younger than the adopter, and should not be the adopter’s
lineal ascendant (Arts. 792 and 793). A married person must adopt a child jointly
with the spouse. The adoption of a minor must be approved by the family court.
The court decides the matter from the viewpoint of whether or not the adoption
is appropriate for the welfare of the child. The motives and purposes for adoption,
the suitability of the adopter, and family relations are taken into consideration. In
one case, the adoption of a baby in order to make him the successor of an abbot
was rejected by the family court.²²
When the child is less than 15 years old, a legal representative may agree to
adoption on behalf of the child. If there is a person who has custody of the child,
this person’s consent is also needed (Art. 797).
It is not uncommon for a married couple to adopt a baby and register it as their
legitimate child. The court has denied the legitimacy of such children.²³ Some
people maintain that this arrangement should be considered as a valid adoption.
The amendment of the Code in 1987 introduced a system of ‘special adop-
tion’. This applies to children below six years of age whose parents have serious
difficulties in bringing up the child, and where the adoption is particularly
needed for the welfare of the child. After a six-month trial period, the family
court may approve adoption. With the adoption, the relationship between the
child and the birth parents is severed, and the child becomes a legitimate child
of the adopters. It is not apparent from the registry that the child has been adopted
(Arts 817-2–817-11).
Parents have rights and duties to care for and bring up the child. A child who
has not yet attained majority is subject to parental power, which is exercised
jointly by the parents. The parents have the right to designate the child’s place
²¹ Judgment of the Supreme Tribunal, 23 January 1940, Minshū 19–54.

²² Adjudication of the Niigata Family Court, 10 August 1982, Kagetsu 35-10-79.
²³ For example, judgment of the Supreme Court, 8 April 1975, Minshū 29-4-401.
of residence and to give consent to the choice of occupation (Arts 821 and 823,
para. 1). Those with parental power have the right to administer the property of
the child and act on the child’s behalf in financial matters. In cases of conflict of
interest, for instance, the transfer of the child’s property to the parents, a special
legal representative for the child must be appointed by the family court (Art. 826,
para. 1).
Where a father or mother abuses parental rights, or commits gross misconduct,
the family court may deprive the person of parental rights on the application of
the public prosecutor (Art. 834). When a minor is left without both parents or
when there is no one to exercise parental power for other reasons, a guardian
is appointed. Unless the person who last held parental power had designated a
guardian, the family court makes the appointment. A guardian is also needed
for those who are declared to have limited capacity. If either partner of a mar-
ried couple is declared to have limited capacity, the unaffected spouse becomes a
guardian. Guardians are supervised by the family court. In practice, when there
is no person to exercise parental power over a minor, the relatives care for the
child without formally selecting a guardian.
4. Procedure for Settling Disputes on Family Matters
There is a special court procedure for family matters—proceedings on personal

status. This procedure covers matters such as divorce, dissolution of adoption,
invalidity and revocation of marriage and adoption, legitimisation, and denial of
legitimacy.
As part of the ‘Justice System Reform’, the new Law on the Proceedings on
Personal Status was enacted²⁴ and the jurisdiction of the court on this proced-
ure shifted from the district court to the family court. The procedure is different
from civil procedure in various aspects. Firstly, the court may take into consid-
eration facts that have not been asserted by the parties and examine evidence ex
officio (Art. 20). Secondly, the questioning of the parties, their representatives and
witnesses on matters which constitute significant secrets regarding their privacy
can be closed to the public by a unanimous decision of the judges. This applies
in cases where their testimony obviously affects their social life, and therefore
they are unable to testify fully, and where the testimony cannot be substituted
by other evidence (Art. 22, para. 1). Thirdly, the judgment is binding not only
on the parties, but also on third parties (Art. 24). This procedure is preceded by a
conciliation procedure.²⁵
²⁴ Law No. 109, 2003.

²⁵ Concerning the procedure, see T. Uchida, Minpō IV Shinzoku • Sōzoku (Civil Law IV, Family
Law and Scucession), Supplemented edn (Tokyo, 2004), pp. 313–319.
There is also a family law adjudication (determination) procedure. Cases are
heard by the adjudication committee chaired by a family court judge with the par-
ticipation of family law councillors. The committee hears cases on the allocation
of the cost of marriage, custody of children, allocation of the inherited estate, etc.
The unsatisfied party to the outcome of adjudication is entitled to file an objection.
If there is no objection, the adjudication has the same effect as a formal judgment.
5. The Law of Inheritance
The law of inheritance also underwent significant changes after the Second World
War. In the pre-war period, the ‘household’ and all the assets were inherited by
the eldest son. The younger sons and daughters had no rights whatsoever to the
estate. This system was totally changed in the post-war reforms. The estate is
distributed among the spouse and all sons and daughters.
There are two kinds of inheritance: testate and intestate. In practice, the former
is not common. The rules concerning the distribution of inherited property are set
out in the Code in detail. The surviving spouse is always an heir. Children of the
deceased are heirs of the first rank, lineal ascendants (parents and grandparents)
are heirs of second rank, and brothers and sisters come third. Thus, where there
is a wife and children, the heirs of the second and third rank have no share in the
estate. In such cases, half the estate is distributed to the surviving spouse, and the
remaining half is divided equally between the children. If there is a spouse but no
children, the estate is divided among the spouse and the lineal ascendants. The
former takes two-thirds of the estate. If the latter have already died, the spouse
and siblings divide the estate. The surviving spouse takes three-quarters of the
assets (Arts 887, 889, 890, and 900).
The share of an illegitimate child is half that of a legitimate child (Art. 900,
subpara. 4). This has come to be criticised within Japan as well as from outside
Japan as being discriminatory. Nevertheless, the Supreme Court ruled that the
matter is within the reasonable discretion of the legislature and that this differential
treatment was not unreasonable discrimination.²⁶
If a prospective heir (a child, sister, or brother) dies before the deceased,
this person’s lineal descendant (grandchild, niece, or nephew of the deceased)
becomes the heir (Art. 887).
A person may apply to the family court for disinheritance of the prospective
heir (Art. 892). Disinheritance can also be effected by will. The grounds for disin-
heritance are maltreatment or serious insult to the testator, or gross misconduct on
²⁶ Decision of the Supreme Court, 5 July 1995, Minshū 49-7-1789; UN High Commissioner
for Human Rights, Concluding Observations of the Human Rights Committee: Japan, 19/11/98.
CCPR/C/79 Add. 102 [See the 2008 UN HRC Report] <http://daccessdds.un.org/doc/UNDOC/
GEN/G09/401/08/PDF/G0940108.pdf?OpenElement>
the part of the prospective heir. An heir can also be disqualified on grounds spe-
cified by the Code, which cover instances where the heir has killed or attempted
to kill the deceased or other heirs who have priority, failed to report the death of
the deceased while knowing that he has been killed, forged the will, or forced
the deceased to alter his will (Art. 891). Disqualification is effected without any
formality.
An heir has a choice to accept or renounce inheritance. The heir may also
accept inheritance with a reservation by declaring that he is liable for the debts
of the deceased only up to the amount of the inherited estate (Arts 920, 922, and
938). Renunciation or acceptance with reservation has to be effected within three
months after the person has become aware of the death of the deceased and of the
fact that he is to inherit the estate. He must prepare an inventory of the estate and
declare renunciation or acceptance at the family court in order to effect renun-
ciation or acceptance with reservation. When an heir fails to renounce or accept
inheritance with reservation within three months, he is deemed to have accepted
the inheritance.
By inheritance, the estate of the deceased as well as his or her debts pass dir-
ectly to the heirs. The Code provides that until the estate is distributed among the
heirs, it belongs to them jointly (Art. 898). The system of personal representatives
is unknown in Japan. Administrators are rarely appointed in practice. The dis-
tribution of the estate is deemed to take effect retrospectively when succession
takes place (Art. 909, para. 1). Since the estate passes to the heirs immediately by
inheritance, there are cases, for instance, where one heir sells part of the property
without the consent of the others before the division of the estate. Or one heir
may want to pay his debts out of the estate. In such cases the distribution of the
estate does not affect the third party who emerged before the distribution (Art.
909, para. 2). Thus, if one of the heirs sold part of the inherited land to a third
party before distribution, this transaction is valid, provided that the third party
was not negligent.²⁷
The actual distribution of assets is effected in accordance with the will, if there
is one. If there is no will the heirs try to agree on the way that the estate should
be distributed. When this fails, an heir may apply to the family court for distri-
bution. The court will try to conciliate, but if this attempt fails the case will be
adjudicated. The distribution of the estate takes into account the nature of the
property, the age of the heirs, their occupation, their mental and physical health,
the circumstances of their life, and all other circumstances (Art. 906). It does not
necessarily have to follow the Code or will, provided that all parties agree. An
heir whose right to inherit the estate has been ignored may claim recovery of his
share within five years after he or his legal representative became aware of the fact
(Art. 884).
²⁷ Judgment of the Supreme Court, 22 February 1963, Minshū 17-1-235.

The scope of an inherited estate is disputed in some cases. First, whether a lease
of a flat or a house is inheritable or not has been discussed. For instance, where the
deceased was living with a common law wife, after his death she may be evicted
by the heirs, if the status of lessee is to be inherited by the heirs. Regarding the
claim of eviction from a landlord, the Supreme Court has acknowledged that a
common law wife may exercise the right of the heir against the landlord.²⁸
Secondly, whether insurance payments should form part of the inherited estate
has been the focus of debate. Generally, when one heir has been designated as
a beneficiary of insurance, it is considered not to be included in the estate. The
same applies to a death allowance paid by a company where the deceased worked.
The beneficiary receives such allowances separately from the sums inherited.
Amongst the heirs those who, by providing labour, service, or financial support
to the business of the deceased or by nursing him, made special contributions for
maintaining or increasing the assets of the deceased receive an additional share
from the estate. If the heirs fail to agree, the family court decides on the matter
(Art. 904-2). This system was formally introduced by the amendment of the Code
in 1980, but in practice family court had taken into account the contribution by
the heirs in dividing the estate even before the amendment. In a typical case
after the amendment, the second wife of the deceased, her daughter, the daughter
of the former wife, and her husband who was later adopted by the couple claimed
that they were entitled to an additional share. The second wife had worked for
forty years on a pig farm on behalf of the deceased who was employed somewhere
else. The adopted son also worked for eight years and contributed to the assets.
Their contribution was found to warrant an additional share by the court. The
daughter had helped her mother, but not enough to constitute a special contri-
bution. The other daughter had left the family after she had grown up and was
found not to deserve an additional share.²⁹
Succession by will is available, but uncommon. Any person over 15 years of age
is capable of making a will. Persons who lack capacity to act may also make a will.
A will can be revoked at any time by the testator. The will must follow the for-
malities set out in the Code. There are three kinds of ordinary wills: a will in the
testator’s own hand (a holographic will), a notarised will, and a secret will (Arts
968–970). There are also less common types of will, such as a deathbed will, and
a will at a remote place, for instance on a ship.
A holographic will must be written by the testator with the date of the will
and the name of the testator and must have his or her seal on it. Witnesses are
not needed. In order to have effect, probate must be obtained from the family
court. A notarised will is made by dictating the will to a notary in the presence
of two witnesses. It is signed and sealed by the testator, witnesses, and the notary.
In a will by secret deed, the testator writes the will, or has someone write it on
²⁸ Judgment of the Supreme Court, 28 April 1967, Minshū 21-3-780.

²⁹ Adjudication of the Maebashi Family Court, 14 July 1985, Kagetsu, 38-12-84.
his behalf, signs and seals it, and puts it in an envelope. The envelope is then
sealed and signed by the testator, two witnesses, and the notary. This also requires
probate by the family court.
The deceased may dispose of his property in his lifetime or by his will as a
testamentary disposition. If the deceased has given property to one of the pro-
spective heirs during his lifetime or by testamentary disposition, this is counted
in the distribution of the estate.
A certain category of heirs have a secured portion of the estate that they cannot
be deprived of, even by will. This is intended to safeguard the family from arbi-
trariness on the part of the deceased. Heirs entitled to this secured portion are
children, spouses, and lineal ascendants (Art. 1028). When the lineal ascendants
are the only heirs, one-third of the estate is reserved for them. Otherwise, half of
the estate is reserved. Therefore, if a wife and two children are left, they are enti-
tled to half of the estate regardless of the will of the deceased.
11
Corporate Law
1. The History of Japanese Company Law
Until 2005, Japanese company law was embodied in the Commercial Code.
Limited liability companies (an equivalent of the German GmbH) were covered by
a separate law. In 2005, as a result of the enactment of a comprehensive company
law—the Company Law—company law was separated from the Commercial
Code. The Commercial Code itself remains in force, covering the general rules,
merchant shipping, and insurance.
The current Commercial Code goes back to the late nineteenth century. A
draft Commercial Code was prepared by Hermann Roesler, a German adviser
to the Japanese government, and was adopted in 1890. Roesler based the draft
Code on the French Code, but referred to German and English law as well.
His intention was to adopt the latest and best principles available at that time.
However, the entry into force of this Code in its entirety was postponed as
a result of the controversy over the draft Civil Code which was prepared by
Gustave Boissonnade, reflecting the rivalry between the supporters of English
law and French law. The part of the Code on company law and bankruptcy came
into force in 1893 as an interim measure. The preparation of the Code was taken
over by another governmental body and a new draft Code was prepared without
the participation of Roessler. Based upon this new draft, the current Code was
enacted in 1899.
The new Code was strongly influenced by the German Commercial Code of
1861 (the current German Commercial Code was enacted in 1897).1 Thus, com-
pany law before the end of the Second World War was predominantly German,
although in 1938 the Japanese Code was amended with some US influence,
which came via Germany. Convertible bonds and shares as well as non-voting
shares were introduced by this amendment.
There was a major influence of US corporate law after the end of the Second
World War in the 1950 amendments to the Commercial Code, which took
¹ H. Schlosser, Grundzüge der Neueren Privatrechtsgeschichte, 9 Aufl age (Heidelberg, 2001),

S. 174–179. For the legislative history of the Commercial Code, see F. Takakura, ‘The Enactment
of the Commercial Code’, Jurist No.1155, pp. 5–13.

218 Business-related Laws
place under the Allied occupation. The 1950 amendments focused on three
areas:
• Facilitation and simplification of financing of companies.
• Reorganisation of corporate bodies.
• Strengthening of the status of shareholders.
While before the end of the war companies were directly managed by share-
holders (directors had to be a shareholder), in this reform, the separation of cap-
ital and management was purported by the introduction of the board of directors
and representative directors. It should be added that, while the Americans urged
the Japanese to strengthen the rights of minority shareholders, there was a strong
resistance from the Japanese industry and those who took part in the preparation
of the bill for fear of the ‘abuse of shareholders’ rights’.2 The legacy of the failure to
strengthen minority shareholders’ rights at this stage remained for many years.
A series of company law reforms began in 1974. The audit system was subject
to major reform with the enactment of the Special Measures Law on the Audit of
Large Companies Limited by Shares. This reflected the public outcry at the time
of the first ‘Oil Crisis’ that companies were behaving badly at the cost of con-
sumers and therefore should be placed under proper control. It was also a rather
delayed response to a major window-dressing case which resulted in the failure
of a company with a 50 billion yen debt, as well as some other major corporate
failures in the mid-1960s. In 1981, there was another major reform. In total, the
company law part of the Commercial Code has undergone amendments more
than seventeen times since the Second World War and before the enactment of
the 2005 Company Law.3
Although the reforms in the 1980s were triggered by some corporate wrong-
doing, there was an overall blueprint of the reform which was to be implemented
in a piecemeal manner over the next few decades. However, in the 1990s, in
addition to these planned reforms, amendments outside the original plan began
to take place. The 1993 amendment was a direct result of the SII Talks with the
US. The fall in the securities and property markets in 1990, which was followed
by a deepening recession over the years, led business organisations to believe
that a wide-scale deregulation was needed. The failure of the economy was thus
partly blamed upon ‘over-regulated’ company law, and more autonomy (‘teikan
jichi’, literally, autonomy of the articles of incorporation) was demanded by com-
panies. This view was supported by an emerging theory of company law which
favoured the review of the mandatory nature of company law provisions. In the
past, the rigidity of the company law was adjusted by shareholders’ agreements,
² T. Uemura, ‘The Allied Occupation and the Reform of Company Law’, Jurist No. 1155, pp.
23–25.
³ An excellent introduction to the pre-2005 system in English can be found in I. Kawamoto
et al. in K. Geen (ed.), International Encyclopedia of Laws, vol.3, Corporations and Partnerships
(Alphen aan den Rijn, 2001).
Corporate Law 219
Table 11.1 Company Law Amendments4
1950 Introduction of the system of the board of directors and representative directors;
limitation of the power of the shareholders’ meeting; limitation of the power of
auditors to audit of finance; introduction of the authorised capital system; expansion
of shareholders’ rights such as the introduction of freedom of transfer of shares,
cumulative voting, derivative action, injunction against unlawful acts of directors,
appraisal rights.
1966 Introduction of restriction on the transfer of shares by the Articles of Incorporation.
1974 Expansion of the power of corporate auditors to the supervision of business in general;
enactment of the Special Measures Law on the Audit of Large Companies Limited by
shares requiring audit by accounting firms for large companies; exclusion of cumulative
voting by Articles of Incorporation.
1981 Invigoration of the general shareholders’ meeting and strengthening of supervision
by shareholders (introduction of the duty of directors to give explanation); the right
of shareholders to make proposals for the general shareholders’ meeting; prohibition
of offering of benefits to special shareholders; increase the size of the unit of shares;
introduction of voting in writing for large companies; introduction of an explicit
provision on the supervisory role of the board over directors and the duty of the
representative director to report regularly to the board; strengthening of the power of
auditors and increase in number.
1990 Relaxation of regulations on small closed companies; the introduction of minimum
capital; lowering of the ceiling of issuing non-voting shares; lowering of the ceiling of
the issuing of corporate bonds.
1993 Strengthening of supervision by shareholders (reform of the system of derivative
actions; relaxation of the requirement for the inspection of the books of account by
shareholders); strengthening of the audit system (extension of the term of auditors to
three years, increase of auditors to three or more; introduction of external auditors,
introduction of the audit board); reform of the system of corporate bonds (abolition
of the ceiling, and the mandatory appointment of a bond-management company).
1994 Relaxation of restrictions on buy-back of shares.
1998 Introduction of stock options; enactment of the Law on the Redemption of Shares;
simplification of the merger procedure.
1999 Introduction of the exchange and transfer of shares in order to facilitate the creation of
a holding company (holding companies were liberalised in 1998).
2000 Introduction of the system of splitting of companies.
2001 Liberalisation of treasury shares; introduction of new classes of shares; introduction of
pre-emption right for new shares; reform of the system of derivative action.
2002 Reform of corporate governance; introduction of new classes of shares with the right to
appoint and dismiss directors; reduction of quorum for qualified majority votes.
2004 Electronic announcement; paperless shares.
2005 Adoption of the Company Law.
2006 The Company Law takes effect (except the part on cash merger).
⁴ E. Ueda, Heisei Shoho Kaisei (Amendments to the Commercial Code in the Heisei Period) (Tokyo, 2004),
pp. 2–15.
but the enforceability of such agreements was not certain. For setting up joint
ventures and financing venture businesses, this was thought to be insufficient.5
Amendments conforming to this view have taken place since 1997.6
This was in line with the general drive for deregulation initiated by the govern-
ment in the mid-1990s. The Ministry of Justice’s deregulation plan announced
in 1998 included the reform of company law. The 2001 Three Year Programme
on the Promotion of Regulatory Reform specifically referred to the review of the
Civil and the Commercial Codes.7 After a series of changes to the Commercial
Code that at that time accommodated company law, the Company Law was
enacted in 2005. The new Law replaced the company law part of the Commercial
Code as well as other related laws. The Law came into force in June 2006.8
It should be noted that the new Company Law did not take effect in its entirety
in 2006. The entry into force of the part of this new Law concerning the ‘diver-
sification of the payment for mergers etc.’ was deferred for a year after the Japan
Business Federation (Keidanren) successfully lobbied for the deferral.9 This part
finally took effect in May 2007.
With the enactment of the Company Law, laws which had previously
supplemented company law, such as the Special Measures Law on the Audit of
Large Companies Limited by shares, were abolished.
The Company Law has delegated some details to ministerial ordinances. These
are ordinances enacted by the Ministry of Justice. They include:
• enforcement Rules of the Company Law;10
• rules on Corporate Accounting;11
• rules on Announcement by Electronic Means.12
2. Types of Companies in Japan
Before the 2005 Company Law, there were four types of companies: companies
limited by shares (kabushiki-kaisha), limited liability companies (yugen-kaisha),
limited partnership companies, and full partnership companies. Partnerships
also have juridical personality in Japan. Limited liability companies under the
5
J. Mori, in K. Egashira and S. Morimoto (eds), Kaisha-hō kommentaru (Commentary to the
Company Law) (Tokyo, 2008), pp. 326–327.
6
This was particularly the case with the amendments initiated by the members of parliament.
Until then, all amendments to company law were initiated by the government via deliberation at
the Legislative Advisory Council.
7
Three Year Programme on the Promotion of Regulatory Reform, 30 March 2001. <http://
www.kantei.go.jp/jp/gyokaku-suishin/12nen/0330kiseikaikaku.html>.
8
On the basic traits of the Company Law, see S. Iwahara, in Shōji-Hōmu, No. 1775, pp. 4–16.
9
Nikkei, 22 March 2005.
10
Ordinance No. 12 of the Ministry of Justice, 7 February 2006.
¹¹ Ordinance No. 13 of the Ministry of Justice, 7 February 2006.
¹² Ordinance No. 14 of the Ministry of Justice, 7 February 2006.
Corporate Law 221
pre-2005 system should be distinguished from the LLC of the US type. These
originated in Germany—an equivalent of Gesellschaft mit beschränkte Haftung—
and were regulated by a separate law, the Law on Limited Liability Companies,
which was enacted in 1922 modelled upon German law.
There were some other vehicles available for business. The Civil Code provides
for associations (kumiai) as one of the typical contracts. Associations are used as
a business vehicle, but the problem is that in associations, members bear unlim-
ited liability. Furthermore, the Commercial Code provides for silent associations
(stille Gesellschaft).
Under the pre-2005 system, there was a major gap between the company law
provisions intended for large public companies which finance themselves from the
securities market, and the reality in which even small local shops were ‘incorpo-
rated’. Companies limited by shares were designed to be large public companies,
whereas limited liability companies were intended for small and medium-sized
businesses. Thus, the maximum number of members for limited liability com-
panies was restricted to 50. In reality, companies limited by shares mushroomed
after the Second World War. According to the National Tax Agency statistics, in
2005 there were 2,580,089 juridical persons in Japan, of which 1,036,664 were
companies limited by shares and 1,453,540 were limited liability companies. Of
the companies limited by shares, 86.7 per cent were companies with a capital of
less than 20 million yen (with limited liability companies, 94.2 per cent had a
capital below five million yen).13 Most of these companies limited by shares were
not listed—there were less than four thousand companies which were listed—
and the remaining were private companies with the transfer of shares subject to
the company’s approval by virtue of the Articles of Incorporation. A great ma-
jority of them never issued shares nor had any substance of companies limited by
shares.
Efforts were made to fill the gap between law and reality. In 1974, the Special
Measures Law on the Audit of Large Companies Limited by Shares was enacted,
which distinguished between large companies, small companies, and the rest and
set out stricter requirements to the former in audit.14 This Law defined compan-
ies with capital of half a billion yen or more or debts of 20 billion yen or more as
‘large companies’, and imposed more stringent rules on these in comparison to
small and medium-sized companies. The 1990 amendment to the Commercial
Code introduced the minimum capital system which was set at 10 million yen for
companies limited by shares and three million yen for limited liability compan-
ies. In 1993, an audit by an accounting firm and the ‘audit board (kansayaku-kai)’
with three corporate auditors became mandatory for large companies.
However, the tide changed in the second half of the 1990s when the Japanese
economy experienced serious difficulties. In order to reinvigorate the economy,
¹³ <http://www.nta.go.jp/kohyo/tokei/kokuzeicho/kaishahyohon2005/02.pdf>.
¹⁴ Law No. 22, 1974.
it was thought that setting up business should be made easier, without requiring
a significant amount of capital. In 2003, a special arrangement which enabled
companies not to have this amount of capital at the time of establishment, but
gave them an allowance period of five years from establishment to meet the
requirement, was introduced. At the time of the enactment of the Company Law,
there was a choice of lowering this amount for companies limited by shares to
three million yen or to abolish the minimum capital requirement altogether.15
The legislature opted for the latter. In the end, the Company Law abolished the
system of minimum capital requirement entirely.
Another novelty of the 2005 Company Law is the abolition of limited liabil-
ity companies that was introduced from Germany in 1938. Limited liability
companies were ‘absorbed’ into the category of companies limited by shares.
Thus, companies limited by shares encompass a wide range of companies, from
major corporations to companies with a negligible amount of capital. Companies
limited by shares are allowed to choose various types of governance structure
(see Table 11.5). While the choice of structure for large public companies is lim-
ited, other companies limited by shares have a broad range of structures, includ-
ing a system without a board or a corporate auditor.
The rationale for the abolition of limited liability companies was that the
distinction between companies limited by shares and limited companies has
become blurred in recent years, namely the distinction between non-public
companies limited by shares (companies limited by shares with restriction on
transfer of shares) and limited liability companies. The idea was to let businesses
start from a structure with a director plus a general shareholders’ meeting, and
then move to a more complex system as the company developed.16 Rather than
applying the rules that had previously been applicable to limited liability com-
panies to private companies limited by shares and thus bring the law closer to
reality, the 2005 Company Law chose to absorb the existing limited liability
companies into the category of companies limited by shares. Limited liability
companies which existed at the time of the entering into force of the Company
Law were automatically converted to companies limited by shares.
As a result, the concept of companies limited by shares has been largely diluted.
While the company law provisions in the Commercial Code before 2005 pri-
marily envisaged large public companies limited by shares, companies limited
by shares under the new Company Law encompasses a wide range of companies,
including the former limited liability companies. This may allow a fairly large
company to adopt a simplified governance structure which may be inappropriate
from the viewpoint of corporate governance.17
¹⁵ Asahi, 15 October 2003.

¹⁶ T. Aizawa (ed.), Shin-Kaisha-Hō (New Company Law) (Tokyo, 2005), p. 13.
¹⁷ T. Inaba, Kaisha-ho no Kihon o Tou (Questioning the Fundaments of Company Law) (Tokyo,
2006), pp. 62–64.
Corporate Law 223
With the abolition of the minimum capital requirement, combined with the
abolition of limited liability companies, there is concern that companies without
the substance of companies limited by shares would be formally set up. However,
it is argued that this is better than not allowing these companies to be formally
set up and left without regulations. It is also suggested that the doctrine of pier-
cing the corporate veil and the liability of directors vis-à-vis a third party would
be able to deal with these abuses.18
The Company Law provides for four types of companies: companies limited by
shares, full partnership companies, limited partnership companies, and limited
liability companies (LLC). Companies other than companies limited by shares
are categorised as partnership companies.
The new limited liability companies (LLCs) are different from the limited liabil-
ity companies before 2005. In contrast to the former limited liability companies of
German origin, they are of US origin—modelled on the LLCs which originated in
Wyoming in the 1970s and are widely used as vehicles for venture businesses, joint
ventures, and investment funds in the US. Members bear limited liability vis-à-vis
a third party, while the internal relationship is similar to that of associations in the
Civil Code in that major decisions are made unanimously and every member is
entitled to execute business (it is possible to entrust it to an executive member). A
major difference between these and the US LLCs is that the tax burden does not
pass through. This may be reviewed in the future, however.
In addition to those companies provided for in the Company Law, there are
limited liability partnerships (yūgen-sekinin jigyō-kumiai) (LLPs) introduced by
Table 11.2 Types of companies

Companies limited by Shares (joint stock companies)
Companies limited by Quota (mochibun-kaisha)
Full Partnership Companies (gōmei-kaisha)
Limited Partnership Companies (gōshi-kaisha)
Limited Liability Companies (LLC, gōdō-kaisha)
Table 11.3 Juridical persons by organisation and the amount of capital

Capital less than 10m 10m to 100m 100m to 1bn over 1 bn
Companies limited by shares 1,392,178 1,066,320 31,418 6,916

Full Partnership Companies 5,247 523 12 0
Limited Partnership Companies 28,813 3,364 22 1
Limited Liability Companies 594 11 0 0
Source: National Tax Agency:<http://www.nta.go.jp/kohyo/tokei/kokuzeicho/kaishahyohon2006/kaisya.

htm>.
¹⁸ Aizawa, supra, p. 32.

the Law on Limited Liability Partnership.19 This was modelled on limited liabil-
ity partnerships introduced in the UK in 2000. In Japan, unlike limited liability
partnerships provided in the Company Law, LLPs do not have juridical person-
ality. On the other hand, they are different from contractual associations in the
Civil Code in that members do not bear unlimited liability. Distribution of profit
and allocation of loss do not have to be proportionate to the contribution. The tax
burden passes through. Reportedly over ten thousand LLPs have been set up in
the UK. As of December 2006, 1,600 LLPs were registered in Japan. 70 per cent
of those were in the service industry (3.5 per cent of them in finance/insurance
industry).20
The Company Law distinguishes between public companies and remain-
ing companies. Public companies are defined as ‘companies that, as a content
of shares, do not require the consent of the company on the acquisition of their
shares through assignment, either for all or part of the shares they issue’ (Art. 2,
subpara. 5). In other words, companies which have a restriction on assignment
only in relation to part of the issued shares are public companies. As a corollary,
non-public companies are those companies that require the consent of the com-
pany in the transfer of shares in relation to all the issued shares.21 Thus, public
companies are not always listed companies.
Listing rules of exchanges require that listed companies do not have any re-
striction on assignment of shares. As of 31 May 2008, 1,746 companies were
listed in the first section (of which twenty-two are foreign companies), and 469 in
the second section of the Tokyo Stock Exchange (hereinafter, ‘the TSE’). In the
market for emerging businesses of the TSE, 197 companies are listed.22
In 1999, the TSE set up a market called ‘Mothers’ in order to facilitate finan-
cing of emerging venture businesses.23 In the past, it took some 25 to 30 years for
companies to be eligible to be listed on the stock exchange. It was felt that easier
access to the financial market by small and medium-sized companies should be
provided. In order to be listed in the Mothers, the requirement of three years’
existence, the requirement of profits of 100 million or more, etc. for the listing
in the first and second sections are dropped; instead, companies are required to
be ‘companies recognised to have growth potential by conducting a business
expected to grow or expand, or by conducting as its core business activities based
on new ideas or technology’.24
¹⁹ Law No. 40, 2005. This should not be confused with the investment business LLPs (tōshi
jigyō yūgen sekinin kumiai) introduced earlier.
²⁰ <www.meti.go.jp/policy/economic_oganization/pdf/>.
²¹ Egashira in K.Egashira and S.Morimoto (eds), Commentary, supra, p. 30.
²² <http://www.tse.or.jp/listing/companies/index.html>.
²³ In Japan, the term ‘venture business’ is often used to denote emerging businesses. In a narrow
sense, ‘venture business’ means small innovative and ‘intelligence concentrated’ companies with a
niche business.
²⁴ Japan Securities Research Institute, Securities Market in Japan 2001 (Tokyo, 2001),
pp. 155–157.
Corporate Law 225
The Osaka Stock Exchange followed the ‘Mothers’ by forming an association

with NASDAQ and opening NASDAQ Japan, but NASDAQ withdrew, and the
market is now called ‘Hercules’. The market for over-the-counter trade run by the
Japan Securities Dealers Association became an exchange for listed shares in 2004
(‘JASDAQ’). In total, there are 953 companies whose shares are traded here.25
JASDAQ and the Osaka Stock Exchange are planning to merge in 2009. Thus, as
a whole, there are some 4,000 companies whose shares are traded publicly.
Another distinction of companies in the Company Law is between large com-
panies and other companies. As was the case with the 1981 Special Measures
Law, large companies are defined as either companies with a share capital of half
a billion yen or more in the last business year, or debt of 20 billion yen or more
(Art. 2, subpara. 6).
Whether the company is a public company, large company, or fits into another
categorisation matters on various occasions, including when it is necessary to de-
termine the governance structure of the company.26
Unless otherwise specified, public companies are focused on in this chapter.
3. Share Ownership Structure of Japanese Companies
According to the annual survey of all stock exchanges in Japan, in terms of

market value financial institutions account for 30.9 per cent, business companies
for 21.3 per cent, and individuals for 18.2 per cent.27
Until the late 1990s there was a widespread system of cross-shareholding in
Japan by which companies mutually held shares. This was advantageous for com-
panies in developing a network of stable shareholders who will not dispose of the
shares regardless of the price, due to a longstanding business relationship. It also
contributed to the maintenance of share prices at a higher level. Banks played
a major role in this relationship. However, this system came to be criticised for
its lack of transparency, its exclusivity, and inefficiency. Due to the constant
decline in share prices since 1990 and the financial crisis in 1997/1998, this sys-
tem became untenable. The ratio of cross-shareholding has substantially fallen.
According to the report of the Nissei Research Institute, which published an
annual report on cross-holding of shares until 2003, the rate of cross-shareholding
has constantly fallen since 1991, from 14.9 per cent to 6.3 per cent in 2003. The
percentage of shares cross-held by banks fell from 7.95 per cent in 1996 to 3.0
per cent in 2003.28
²⁵ <http://www.jasdaq.co.jp>.
²⁶ See also Aizawa (eds), supra, pp. 267–276.
²⁷ TSE, Kabushiki Bunpu Jōkyō Chosa 2007 (Share Ownership Survey 2007). <http://www.tse.
or.jp/market/data/examination/distribute/h19/distribute_h19a.pdf>.
²⁸ Nissei Research Institute, Kabushiki Mochiai Jōkyō Chōsa 2003 (Survey of the State of Cross
Shareholding 2003) <http://www.nli-research.co.jp/consulting/misc/mochiai03.pdf>, p. 16.
The fall is also reflected in the decrease in the percentage of shares held by
fi nancial institutions. In 1990, fi nancial institutions held 43 per cent of the
value of shares in the market, but by 2007, this has fallen to 30.9 per cent.
Shares held by business companies have also declined from 30.1 per cent to
21.3 per cent. Th is was compensated by the increase in the shareholding by
foreigners. In 1990, foreigners accounted for a mere 4.7 per cent, while in the
early 2000s, the percentage was over 20 per cent and in 2007, 18.2 per cent in
terms of value.29
Another characteristic of share ownership in Japan is the low percentage of
individual shareholders. The percentage is around 20 per cent, and despite the
effort of the government to cultivate individual investors, there has not been any
significant increase. According to a survey by the Cabinet Office in 2007, only
11.3 per cent of the respondent individuals were investing in shares and invest-
ment trusts and wanted to continue, while 74.1 per cent responded that they had
no intention of such investment.30 On the other hand, in terms of the number of
investors, the number of individual investors has substantially increased. The use
of the Internet has contributed to this increase.31
4. Setting up Companies32
(1) Methods of setting up companies limited by shares

There are two methods of setting up companies: setting up solely by promoters
only (hokki- setsuritsu) and setting up by offering of shares (boshū-setsuritsu).
Before the 1990 amendments, in order to set up a company solely by founders,
a comptroller had to be appointed. In order to avoid this, setting up by offer-
ing of shares was used in a setting up, which was in reality a setting up solely
by promoters. The 1990 amendment abolished the requirement of appointing
a comptroller unless there are irregular matters such as in-kind contribution to
be provided in the Articles of Incorporation. As a result, there was a decline in
setting up procedures by offering of shares. Therefore, when the Company Law
was being enacted, there was a proposal to abolish this procedure altogether.
After all, most companies are set up by promoters first, and shares are offered
to the public later. However, a need for a procedure in which one can become
²⁹ <http://www.tse.or.jp/market/data/examination/distribute/h19/distribute_h19a.pdf>.
³⁰ <http://www8.cao.go.jp/survey/tokubetu/h19/h19-tousi.pdf>.
³¹ T. Kaga, ‘Heisei 18 nendo Kabushiki Bunpu Chōsa Kekka no Gaiyō (A Summary of the
Survey on Share Ownership)’, Shōji-Hōmu, No. 1810, pp. 44–46.
³² For details, see JETRO ed., Setting Up Enterprises in Japan, 7th edn (Tokyo, 2006).
Corporate Law 227
a shareholder without assuming the liability of a promoter was acknowledged,

and the Company Law continued to provide for both methods.33
(2) Setting up solely by promoters

(a) Promoters
Promoters are those who signed the Articles of Incorporation of the company
to be set up. Promoters must subscribe to at least one share which is issued at
the time of establishment (Art. 25, para. 2). There is no requirement for be-
coming a promoter. An individual as well as a juridical person can become a pro-
moter. Whereas previously, seven promoters were required, now one promoter is
sufficient.
When a foreign individual or juridical person becomes a promoter, it may take
time to have their identity confirmed and the power certified. Therefore, often a
Japanese national sets up a company and then immediately afterwards, shares are
assigned to the foreign person, or are subscribed to by foreign persons.34
(b) Articles of Incorporation

The promoter(s) must prepare the Articles of Incorporation. All promoters must
sign it. It is mandatory for the Articles of Incorporation to accommodate the
following matters (Art. 27):
• purposes of the company;
• trade name;
• the location of the main office;
• the value of assets to be contributed, or their minimum value;
• the name of the promoter and the address.
Before the Company Law, the total number of issuable shares was a matter to
be included in the Articles of Incorporation at the time of notarisation. Now
it does not have to be included in the notarised Articles of Incorporation, but
needs to be accommodated before the company is established. The total number
of shares issued at the time of establishment may not be lower than a quarter of
this amount in public companies (Art. 37).
Some matters, such as the names of persons who make an in-kind contribution,
the assets and their value, and the number and classes of shares allocated to this
person do not have any effect unless provided for in the Articles of Incorporation
(Art. 28).
³³ K. Egashira in Egashira and Morimoto supra, pp. 242–243.

³⁴ Nagashima, Ohno and Tsuenmatsu Law Office, Advance Kaisha-Hō (Advanced Corporate
Law), 2nd edn (Tokyo, 2006), pp. 55–56.
Articles of Incorporation do not have effect without notarisation (Art. 30,
para. 1).
(c) Other matters to be determined by the promoters

The Company Law has abolished the system of minimum capital. The promoters
must unanimously determine the following matters at the time of establishment
(Art. 32, para. 1):
• the number of shares issued at the time of establishment which are to be
subscribed by the promoter(s);
• payment to be made in consideration of the above;
• the amount of capital and capital reserves.
In cases where there are irregular matters, for example in-kind contributions,
the promoter(s) must apply to the court for the appointment of a comptrol-
ler (Art. 33, para. 1). Normally, an attorney is appointed by the court. At the
Tokyo District Court, it takes around 50 days for the comptroller to report
the result of investigation to the court.35 If problems are found, the Articles of
Incorporation must be amended (ibid., para. 7). The promoter(s) may, within
one week of the decision of the court, withdraw the subscription of shares (ibid.,
para. 8).
The appointment of a comptroller is not needed where:
• the in-kind contribution does not exceed five million yen;
• the contribution is made in the form of securities that have a market value;
• experts such as attorneys, accountants, or tax attorneys certify that the value as
provided in the Articles of Incorporation is adequate (Art. 33, para. 10).
(d) Pay-in by the promoters

Promoters must pay in the entire amount of contribution (monetary or in-kind)
without delay after subscribing to the shares (Art. 34, para. 1). If any of the
promoters fail to pay in, other promoters may remind this promoter and set a date
for payment which is within two weeks of the notice. If this promoter fails to pay,
he loses the right to become a shareholder of the company (Art. 36).
(e) Appointment and dismissal of directors and other officers

The Company Law has introduced a new concept of directors, corporate audi-
tors, and other officers ‘in the process of establishment’. They are appointed by
a majority vote of the promoters (Art. 38, paras 1 and 2 and Art. 40, para. 1). In
companies with a board, the number of directors needs to be three or more (Art. 39,
para. 1). A representative director(s) is elected by the directors from within them
³⁵ Ibid., p. 68.
Corporate Law 229
(Art. 47, para. 1). If the company to be established is a company with an audit
board, there must be at least three corporate auditors at this stage (Art.39, paras
1 and 2). The role of these officers is to supervise the process of the establishment
of the company by promoters, and is different from the role of those officers after
establishment (Art. 46). Directors at the time of establishment can be dismissed
by a majority vote of the promoters, while the dismissal of corporate auditors
requires a two-thirds majority vote (Art. 43, para. 1).
(f) Registration
The company is formally established by registration at the place of the main office
(Art. 49). Matters to be registered are specified in the Company Law (Art. 911,
para. 3). There are matters such as the amount of capital that are not included in
the Articles of Incorporation, but need to be registered.
(g) Liability of promoters

In cases where the value of in-kind contribution at the time of the completion
of the company’s establishment is significantly lower than the value as indicated
in the Articles of Incorporation, promoters and directors in the process of estab-
lishment are jointly and severally liable for the deficit (Art. 52, para. 1). This does
not apply if they prove that they were not at fault, or the comptroller had been
appointed (ibid., para. 2). Promoters, directors, and corporate auditors in the pro-
cess of establishment are also liable vis-à-vis the company for the neglect of their
duties (ibid., para.2).
(3) Setting up of companies by offering shares

(a) Off ering of the shares
Promoters may offer to others the shares to be issued at the time of establishment
(Art. 57). They must determine unanimously the number of shares to be offered,
the amount of payment for the shares, the date of payment or its period, etc. (Art.
58, paras 1 and 2). Promoters allocate the shares to those who applied for sub-
scription to those shares and notify them (Art. 60). Promoters have a free hand in
allocating the shares.
(b) The founding meeting of shareholders

After the date of payment, promoters must convene a general meeting of those
who are to become shareholders (founding meeting) without delay (Art. 65, para.
1). At the meeting, the promoter reports matters related to the establishment of
the company (Art. 87). Directors and corporate auditors are appointed at the
founding meeting by the prospective shareholders (Art. 88). They are required
to report the result of their investigation of the establishment procedure to the
shareholders (Art. 93).
(c) Liability of promoters and others

Since this type of establishment procedure involves those other than promoters,
the liability is aggravated in comparison to establishment solely by promoters.
Promoters bear strict liability for the deficit of an in-kind contribution (Art. 103).
Those who allowed their name to be used in advertisements and in other docu-
ments involving an offer for the support of the establishment of the company, but
who were not promoters, are held liable in the same manner as promoters (Art.
103, para. 2).
5. Shares
(1) Abolition of par-value shares

Before the Second World War, only par-value shares were issued. In 1950, non-par
value shares were introduced, but they were unpopular. Even in the 1990s, in the
first section of the TSE, only eight companies’ shares were all non-par value.36
It was mandatory for the par value multiplied by the number of issued shares
to be capitalised. In the second half of the 1980s, the discrepancy between the par
value and the issue price was steadily growing. Therefore, there was a requirement
to have at least half of the issue price of the shares (not the par value or minimum
value) to be capitalised both in par-value and non-par value shares. However, if
this requirement is in place, there is not much reason to maintain par value. On
the other hand, the poor state of the economy in recent years necessitated change.
Some companies’ share prices fell under par, which made it impossible for these
companies to finance themselves.
Since the 1981 amendments to the Commercial Code were made, it had always
been the intention of the legislature to fade out par-value shares,37 but companies
had failed to respond. Therefore, as a result of the 2001 amendments, par-value
shares were abolished altogether. The current requirement is simply that up to
half of the amount paid in needs to be capitalised (Art. 445, paras 1 and 2).
(2) Trading units

When the par-value shares were totally abolished in 2001, the system of trading
units, i.e. the minimum amount of shares which can be traded, was introduced.
³⁶ J. Ujiie (ed.), Nihon no Shihon-Shijyō (Capital Market in Japan) (Tokyo, 2002), p. 82.
³⁷ The par-value requirement of English company law has been criticised by review bodies for
decades. The UK Gedge Committee of 1945 already found various advantages of non-par value
shares, including the facilitation of capital reorganisations and the raising of additional equity cap-
ital. In the US, non-par value shares are widely utilised, although this occurs alongside par-value
shares. Australia totally abolished par-value shares in 1998. However Europe, after enacting the
Second Company Law Directive, mandates public companies to attribute par value to their shares.
Ferran, Principles of Corporate Finance Law (Oxford, 2008), p. 87.
Corporate Law 231
A vote is given not to each share, but to a unit of shares set by the company
(Art. 188, para. 1). One unit of shares cannot exceed 1,000 shares (ibid., para. 2).
The system of unit shares is not mandatory, but if the company opts to adopt it, it
has to be accommodated in the Articles of Incorporation. The board is entitled to
reduce the number of shares in the unit, or abolish the system. According to the
TSE Fact Book, in the first section, 1,723 companies have the unit share system
in place. In almost half of them, one unit is 100 shares, and in the remaining half
1,000 shares.38 Shareholders who hold shares below a unit are entitled to require
the company to purchase these shares (Art. 192, para. 1).
(3) Split-up and consolidation of shares

The split-up and consolidation of shares are basically a means to adjust the size
of shares to the size appropriate for a given company. These used to be highly
restricted, but since 2001, the decision is largely left to the companies.
Split-up can be decided by the board (Art. 183). By split-up, shares will be-
come easier to trade and thus liquidity will be increased. At the time of the
‘IT bubble’ in the early 2000s, IT companies’ share prices became too high to
be easily tradable. Therefore, the shares of these companies had to be split. TSE
has been promoting the sizing down of the trading lots for some time in order to
increase the number of individual shareholders. Theoretically, the splitting up
of shares is neutral to the share price. However, there is a time lag between the
split-up and the actual issue of new shares. In the early 2000s, some companies
split up their shares by a substantial number (in one case, 10,000 times) which
resulted in a surge of the share prices. TSE asked companies to refrain from split-
ting up their shares by more than five.
Share consolidation was strictly limited until the 2001 amendment, since
it may be disadvantageous to shareholders as a result of the odd shares result-
ing from the consolidation. Now there is no restriction regarding the grounds
for consolidation, although it needs to be explained at the general shareholders’
meeting. Share consolidation requires a qualified majority vote of shareholders
(Art. 180, para. 2 and Art. 309, para. 2).
(4) Share exchange and share transfer

In 1999, following the liberalisation of holding companies, a share exchange
(kabushiki-kőkan) and share transfer (kabushik-iten) system were introduced. In
a share exchange, a company causes another company to acquire all the issued
shares of the first company (Art. 2, subpara. 31). In a share transfer, one or more
companies cause all their issued shares to be acquired by a newly set up company
³⁸ TSE Fact Book 2008, <http://www.tse.or.jp/english/market/data/factbook> p. 7.

(Art. 2, subpara. 32). Share exchanges can be used not only in creating a 100 per cent
subsidiary, but also as a means of M&A.
The contract of share exchange and the plan for share transfer are subject to the
qualified majority vote of shareholders (Art. 783, para. 1, Art. 795, para. 1, Art.
804, para. 1, and Art. 309, para. 2). Shareholders who are opposed to the share
exchange and share transfer are given appraisal rights (Arts 785, 797, and 806).
There is also a simplified procedure and a summary procedure (when in a share
exchange, one of the parties is the ‘special control company’ of the other).
(5) Classes of shares

(a) Introduction of new classes of shares
Before the 2001 amendment, preference shares were available, but only in respect
to the payment of dividends or interest, or the distribution of assets at the time
of liquidation. Non-voting shares did not exist as a separate class of shares; only
when preference shares relating to dividends were issued could the Articles of
Incorporation determine that their shares were non-voting. The voting right was
restored when the preference rights were affected, e.g. when the proposal to pay a
preferential dividend was not on the agenda of the general shareholders’ meeting.
Shares were either voting or non-voting; there was no share with limited voting
rights.
By the 2001/2002 amendments, the system was totally revised for the
‘increased flexibility in financing companies’. Non-voting shares were acknowl-
edged as a separate class of shares and no longer have to be preference shares.
Shares with limited voting rights were introduced. The maximum number of
shares with limited or no voting rights was increased from one third to one half
of the issued shares.
Companies may make all the shares they issue fall within one of the following
categories (Art. 107):
(i) shares for which the transfer is subject to the approval of the company;
(ii) shares where it is the right of the shareholder to require the company to
acquire them;
(iii) shares where it is the right of the company to acquire them without the con-
sent of the shareholder, if certain incidents occur (shares with an acquisition
clause).
Companies may issue two or more classes of shares whose content may differ on
the following matters (Art. 108, para. 1):
(i) distribution of surplus;
(ii) distribution of residual assets;
Corporate Law 233
(iii) matters on which the shareholder may cast a vote at the general share-
holders’ meeting;
(iv) requirement of the company’s consent for the acquisition of the given class
of shares by assignment;
(v) right of the shareholder to require the company to acquire their shares;
(vi) right of the company to acquire all the shares of the given class from share-
holders if events listed in the Articles of Incorporation occur;
(vii) the right of the company to acquire all the shares of a specific class by a
resolution of the general shareholders’ meeting;
(viii) requirement of a resolution of the meeting of shareholders of a specific class
on a specific matter in addition to the resolution of the general sharehold-
ers’ meeting or the board;
(ix) the right to appoint directors and corporate auditors at the meeting of share
holders of a specific class.
Category (ix) is not available to public companies and companies with commit-
tees within the board.
In order to issue the above classes of shares, the content and the number of
such shares as can be issued need to be specified in the Articles of Incorporation
(Art. 108, para. 2).
The introduction of shares with no vote seems to be different from the European
approach as it aims to ensure that the shareholders have effective voting rights by
ensuring them votes equivalent to their investment.39
(b) Specific classes of shares

• Preferred and Deferred Shares (Shares with Different Arrangements regarding
the Distribution of Surplus or Liquidated Assets)
(i) and (ii) immediately above cover preferred and deferred shares before 2006.
A new class of shares regarding the distribution of profits is the ‘tracking
stock’ which is used in the United States. It is a class of shares linked with the
performance of a specific part of the business or a subsidiary of the company.
Sony, in 2001, before the 2001 amendment, issued tracking stocks which were
linked to the performance of its subsidiary. This system enables companies
with a number of subsidiaries or a wide range of businesses to realise the value
of the subsidiary or the business in the stock market. Even a company which is
not doing well and whose shares are unattractive can finance itself in this way
if it has a well-performing part of the business or a subsidiary. However, it has
its downside in that there is a potential conflict of interests between the holders
³⁹ A. Poutianen, ‘Shareholders and Corporate Governance: the Principle of One Share–One

Vote’, European Business Law Review, March/April 2001, p. 77.
of the common shares and the tracking stocks. Company management owes a
fiduciary duty to the company and ultimately to all shareholders. If the com-
pany is in need of finance, the management may favour a particular subsidiary
or a division by allocating resources so that the issue of tracking stocks would
be successful. This is likely to harm the interest of the holders of the common
shares.40
Previously, it was not clear whether or not tracking stock could be issued
in Japan, since only the maximum amount of the dividend could be specified
in the Articles of Incorporation. This problem is now solved by the Company
Law, as a summary of the criteria for the calculation of the dividend can be set
out in the Articles of Incorporation. This, in effect, gives more discretion to the
board.
• Shares with Restriction on Assignment
Concerning assignability of shares, before 2005, shares were either all assignable
or non-assignable. Now it is possible to make the acquisition by assignment of
‘all or part of the shares’ subject to the company’s approval. Apart from making
all shares subject to a restriction on assignment, companies may create a class of
shares which are not assignable without the approval of the company (Art. 108,
para. 1, subpara. 4).
• Shares with Limited Votes
Companies may issue shares which differ in relation to the matters on which
the shareholders can vote (Art.108, para.1, subpara.3). There can be shares
with no vote at all, as well as shares with a vote only on certain matters. These
types of shares are denoted as shares with limited votes. An example is the
class of shares which gives the shareholders a right to vote only on the pro-
posal for the disposal of profits that are intended to be used in relation to ven-
ture capitals that are primarily interested in receiving dividends rather than
getting involved in business matters of the company. On the other hand,
shares with multiple votes, or share capping, are not allowed under Japanese
law.41
In public companies, shares with limited votes are allowed up to a limit of
50 per cent of the issued shares (Art. 115). Before 2001, the ceiling was set at
one-third. If the number of such shares exceeds 50 per cent, ‘companies must
take measures to reduce such shares’, but there is no penalty.
Shares with limited votes are intended to give more alternatives to compan-
ies in financing. The idea was that (i) investors who are not interested in voting
may be attracted, particularly with the relatively low issue price as compared
to the full voting shares; (ii) companies do not need to be concerned about the
⁴⁰ H. Maeda (ed.), Shōhō-Kaisei; Jitsumu no Subete (Reform of Company Law: Practical Aspects)
(Tokyo, 2002), pp. 20–21.
⁴¹ K. Egashira, Kabushiki-kaisha-hō (The Law on Companies Limited by Shares), 2nd edn (Tokyo,
2008), p. 139.
Corporate Law 235
quorum of the general shareholders’ meeting and reduce the management cost
of shares; and above all (iii) the incumbent management can seek finance with-
out endangering their position.42 There may also be cases where, between joint
venture partners or investors in small/medium-sized companies, the share of
the investment differs, but the votes need to be equal.43
Although diversification of finance has a rationale, there is a possibility that
the incumbent management of the company may abuse the system. This is
particularly true in Japan where the protection of the rights of minority share-
holders is not effective in reality. Already in the mid-1990s, such apprehension
was raised by some experts, but remained unheeded.44 Now that the ceiling of
the number of such shares has been raised from one-third to 50 per cent, there
is a further increased risk of abuse.
• Shares with the Right of the Shareholder to Require the Company to Acquire
them
There can be shares in which the shareholder is entitled to require the com-
pany to acquire the shares (shares with a put option45) (Art. 2, subpara. 18).
The price can be paid by cash, bonds, other classes of shares of the issuing
company, a pre-emption right for new shares, etc. The issuing of such shares
as well as the means of payment need to be set in the Articles of Incorporation
(Art. 108, para. 2, subpara. 5). If the price is paid in cash, it corresponds to
the former (mandatory) redeemable shares, and if it is paid by bonds, it cor-
responds to the former convertible shares. All or part of the issued shares can
be shares with a put option on the part of shareholders (Art. 107, para. 1 and
Art. 108, para. 1, subpara. 5). If the book value of the assets which are to be
paid as the price of those shares exceeds the limit of distributable surplus
at the time the option is exercised, the payment cannot be made (Art. 166,
para. 1).
• Shares with the Right of the Company to Acquire them
The Company Law allows shares for which the company is entitled to purchase
all or part of the issued shares from the shareholder if a certain event which is
provided for in the Articles of Incorporation occurs (shares with a call option)
(Art. 2, subpara. 19). This can be the entire lot of shares issued by the com-
pany, or can be made a specific class of shares (Art. 107, para. 1, subpara. 3 and
Art. 108, para. 1, subpara. 6). As is the case with the shares with a put option,
the price of acquisition by the company can be paid by other classes of shares,
bonds, cash etc.
⁴² Maeda (ed.), supra, pp. 9–10.

⁴³ Egashira, Kabushiki-kaisha-hō, supra, p. 139.
⁴⁴ T. Uemura, ‘The Principle of Equality of Shareholders’, in A.Takeuchi (ed.), Tokubetsu Kōgi
Shōhō (Special Lectures on Commercial Law) (Tokyo, 1995), p. 22.
⁴⁵ M. Kishida, Kaisha-hō Nyūmon (Introduction to Company Law), 6th edn (Tokyo, 2006),
pp. 359–361.
• Shares with the Right of the Company to Acquire the Entire Class of Shares
In addition, a class of shares in which the company, by a qualified majority
vote of the shareholders, is entitled to acquire all the shares of this class, is
available (Art. 108, para. 1, subpara. 7). It is presupposed that companies
issue two or more classes of shares. Acquisition of the entire class of shares
may be necessary when the company is insolvent and the replacement of the
entire class of shareholders is needed. Before the Company Law, this was only
possible by a unanimous vote of shareholders. The Company Law has relaxed
this requirement, but on the other hand, shareholders who are against this are
entitled to apply to the court for the determination of the acquisition price
(Art. 172, para. 1).
• Shares with a Veto Right
Shares provided for in (viii) are shares with a veto right. ‘Veto’ in this context
means that for a certain matter to be approved, in addition to the resolution
of the general shareholders’ meeting or the board, whichever is required, the
approval of the meeting of the shareholders of a specific class is needed. Before
2001, such veto rights given to a specific category of shareholders were prac-
tised via shareholders’ agreements when venture capitals invested in businesses.
However, these agreements had some problems in their enforcement, and it
was felt that these matters should be covered by company law.46 On the other
hand, it should be noted here that the new system is now applicable not only to
venture businesses, but companies in general.
Thus, ‘golden shares’ are widely available under the Company Law.
Furthermore, the assignment of such shares can be made subject to the
approval of the company. While the Company Law does not have any restric-
tions on golden shares, the TSE published a programme on the improvement
of the listing system in relation to the introduction of defensive measures
against takeovers. In principle, issuing classes of shares with the requirement
of the resolution of a specific class of shareholders on significant matters such
as the appointment and/or dismissal of the majority of directors is a ground
for delisting.47
• Shares with the Right to Appoint Directors/Corporate Auditors
Companies other than public companies and companies with the committee
system are allowed to issue shares which entitle the shareholders to appoint and
dismiss directors and corporate auditors (Art. 108, para. 1, subpara. 9). In such
companies, appointment and dismissal of directors and auditors are not made
⁴⁶ H. Nagata et al., Shurui-kabushiki no Jiyūkani Kansuru Serdo-kaiseic (Liberalisation of

Classes of Shares and Related Changes to the System’, Shōji-Hōmu, 2002, No. 1630, pp. 32–33.
⁴⁷ 24 January 2006. See <http://www.tse.or.jp/rules/ma/index.html>.
Corporate Law 237
by the general shareholders’ meeting, but by the meeting of this class of share-
holders (Art. 347).
(c) New classes of shares in action

Some of the newly allowed classes of shares were used as a defensive measure in a
celebrated case involving UFJ Holdings in 2004. The UFJ Bank was struggling
to meet the BIS capital adequacy ratio and was in need of external support. There
were two offers—one by the Mitsubishi Tokyo Bank and the other by the Mitsui
Sumitomo Banking Corporation. The management of UFJ Holdings preferred
the Mitsubishi Tokyo Bank and issued new shares of the UFJ Bank, which is a
100 per cent subsidiary of UFJ Holdings, at 700 billion yen and allocated them to
the Mitsubishi Tokyo Bank. The shares issued were preferred shares with no vot-
ing rights, but could be converted to voting shares, if a merger or other reorgan-
isation measure was approved by shareholders of UFJ Holdings, if UFJ Holdings
issued new shares to a third party, and also if a shareholder with more than one
third of shares emerged as a result of a takeover bid against UFJ Holdings. The
shares gave veto rights and the right to appoint a certain number of directors. In
the end, Mitsubishi Tokyo Bank successfully merged with UFJ Bank.48 However,
whether the measures adopted by Mitsubishi Tokyo Bank and UBJ Holdings
were reasonable and proportionate was questionable.
Shareholders were not given a choice by the board. Despite the fact that the
merger ratio was not determined by Mitsubishi Tokyo Bank, while UFJ had
made a specific proposal on this matter, the board went ahead with the former.
The board was by no means neutral. There was also an abuse of the holding
company system, not in the least because events involving the holding company
were designed to trigger the veto right attached to the shares of the subsidiary.
Under the current TSE rules, this is not possible any more. The penalty was also
disproportionate and unreasonable.
(6) Reduced role of share certificates

Before 2005, it was a norm that companies issue share certificates, and only as
an exception, upon the request of shareholders, were companies exempt from
issuing certificates. The Company Law has reversed this. Now, only those com-
panies which, by the Articles of Incorporation, require that share certificates
should be issued for all shares must issue them (Art. 214). Currently, however,
listed companies are required to issue share certificates by virtue of the listing
rules. In companies that issue share certificates, shareholders may request the
company not to issue them in relation to the shares they hold (Art. 217, paras 1
and 3).
⁴⁸ Nikkei, 2 November 2004.

While share certificates continue to be issued, the central stock depository sys-
tem will play a major role in the safekeeping and transfer of share certificates.
Under this system, share certificates are deposited with the Japan Securities
Depository Centre, which is designated as the central depository agency by the
Law on the Custody and Transfer of Share Certificates.49 In 2004, the Law on
Book-Entry Transfer of Corporate Bonds and other Securities was amended to
include shares. This Law is to enter into force by 2009. Then, public companies
will be regarded as having amended their Articles of Incorporation and as having
decided not to issue share certificates. Shares will be transferable through book
entry.
The Centre handles not only share certificates, but also bonds and other
securities. Securities companies and banks are participants of this Centre, while
investors have an account with these participants. The delivery of securities,
resulting from a purchase, sale, or use for collateral is processed by book-entry
transfers between accounts of customers maintained by the participants and/
or the accounts of participants maintained at the Centre without any physical
delivery of securities.50 As the central securities depository system has become
recognised, over 80 per cent of outstanding shares of listed companies in Japan
are held in custody with the Centre. From 2009, the system of share certificates
of listed companies will be abolished. Shares will be administered electronically
by the Centre.
In order for a shareholder of a company which issues share certificates to
claim rights vis-à-vis the company, the shareholder must be listed in the share-
holders’ register (Art. 121). In cases where shareholders exercise their rights as
a group, e.g. a general shareholders’ meeting, the company is under an obliga-
tion to prepare a substantive shareholders’ register, based upon the information
from the Depository Centre. Th is list has the same effect as the shareholders’
register.
In companies which issue share certificates, the assignment of shares is effected
by the handing over of the share certificate. Even if the share certificate has not
been issued, the assignor needs to ask the company to issue it. If a book-transfer
system is available, the assignment can be effected by book transfer.
Shares can be pledged (Art. 146). There are three means of pledge. In sim-
plified pledge, the pledge takes effect by transferring the share certificate, or by
book transfer. The pledge is not known to the company. With registered pledge,
the pledge is registered in the shareholders’ register. The pledge is entitled to
receive dividends direct from the company. There is also pledge by assignment
of shares.
⁴⁹ <http://www.jasdac.com/en/>.
⁵⁰ Japan Securities Research Institute (ed.), Securities Market in Japan 2006 (Tokyo, 2007),
pp. 183–184.
Corporate Law 239
(7) Assignment of shares

In principle, shares are freely assignable, but companies may place restriction on
the assignment of shares, i.e. making it subject to the approval of the company.
Assignment can be restricted in all the shares, or in a special class of shares.
In companies with a restriction on assignment of shares, shareholders who
intend to assign shares to another person may ask the company to decide whether
it would approve the assignment by disclosing the name and other information
regarding the assignee (Arts 136 and 138). The assignee is also entitled to do the
same (Art. 137, para. 1). If the company fails to notify the parties of the deci-
sion within two weeks of the request, the company is deemed to have approved
the assignment (Art. 145). If the company does not approve the assignment, the
shareholder is entitled to require the company to purchase those shares, or designate
an assignee (Art. 138, para. 1).
The purchase price is to be determined by the company and the person who
asked for the approval of the company. Either party may apply to court for the
determination of the price. The court must take the financial state of the com-
pany and all other circumstances in consideration at the time of the request for
approval when making such a determination (Art. 144, paras 1–3).
(8) Pre-emption right for new shares

The pre-emption right for new shares is a new concept introduced by the 2001
amendment. The Company Law defines it as a right by the exercise of which the
holder is entitled to receive shares of the issuing company (Art. 2, subpara. 21).
To be sure, there were pre-emption rights for new shares under the Commercial
Code in the form of stock options, convertible bonds, and warrant bonds before
2001. They were strictly regulated and only as exceptions in the above three
instances were they allowed, since they were regarded as something similar to
the issuing of shares at an especially advantageous price to a third party with the
potential dilution of the shares of existing shareholders. It was thought that while
debt finance could be left to private autonomy, equity finance should be regulated
in a stricter way. However, in recent years, the demarcation between debt finance
and equity finance has become blurred.51
By the 2001 amendment, a comprehensive concept of pre-emption rights on
new shares was introduced and extensive liberalisation took place. This new con-
cept covers the above three instances, but goes beyond them. Pre-emption rights
do not need to be combined with bonds. It is possible to grant pre-emption rights
for new shares on their own as well as in combination with other financial prod-
ucts. The value of the pre-emption right per se, which had hitherto been regarded
⁵¹ F. Endo and J. Yoshikawa, ‘Shinkabu-yoyakuken no Sōsetsu (The Creation of Pre-Emption

Right for New Shares’, Shōji-Hōmu, 2002, No. 1627, pp. 18–19.
as an attachment to the bonds, has been acknowledged. This was made possible
by developments in accounting theory which enabled the calculation of the fair
value of pre-emption rights for new shares. The 2001 amendment is regarded as
the widening of private autonomy in corporate finance.52
Pre-emption rights for new shares can be used by companies with insufficient
finance, for issuing them to their trading partners in lieu of cash payment. There
are also an increasing number of companies which issue them to a third party,
such as a securities company, for finance. The third party may exercise the option
over a certain length of time.53 Furthermore, they can be used and are used as
defensive measures against takeovers. This has happened in some celebrated cases
such as the attempted takeover of the Nippon Broadcasting System by Live Door
in 2005 (see Section 7Ch).
Previously, when pre-emption rights for new shares were used as stock (share)
options for directors and employees, there were various restrictions such as the
maximum limit of 10 years of calling the option; numerical ceiling of 10 per cent
of the total number of issued shares; and a justifiable reason was needed for the
stock option. The above restrictions were all removed. Actually, there is no longer
any specific provision on stock options. Stock options are now fully covered by
the general provisions on pre-emption rights for new shares.
Pre-emption rights for new shares are issued in various ways. They can be
issued to a third party, including to directors/employees as an incentive. They
may also be offered to the public.
In order to offer pre-emption right for new shares, certain details need to
be approved by a qualified majority vote of the general shareholders’ meeting,
including their content and number; whether it is issued in a gratuitous manner
or not; and, if not, the amount of payment or the method of its calculation, etc.
(Art. 238, paras 1 and 2 and Art. 309, para. 2, subpara. 6). However, in public
companies, the board may make this decision (Art. 240, para. 1).
If pre-emption rights for new shares are issued in a gratuitous manner and it
comprises an especially advantageous term to the subscriber, or if the issue price
is especially advantageous to the subscriber, the board must explain why the pre-
emption rights for new shares need to be issued in such a manner (Art. 238,
para. 3). Even in public companies, the terms must be approved at the general
shareholders’ meeting by a qualified majority vote in such cases.
Pre-emption rights for new shares may be issued to the existing shareholders.
In such cases, shareholders are entitled to subscribe to the pre-emption rights for
new shares in proportion to their shareholding (Art. 241, para. 2). In this way,
pre-emption rights for new shares can be and have been used in a rights plan.
Transfer of pre-emption rights for new shares is allowed as a rule, but can be
made subject to restriction.
⁵² Ibid., p. 19. Ueda, supra, p. 139.

⁵³ Nikkei, 12 December 2006.
Corporate Law 241
Table 11.4 Issuing of pre-emption right for new shares⁵⁴
Year No. Amount (million yen)
2002 427 564,197

2003 636 418,577
2004 714 818,094
2005 897 1,236,231
2006 895 1,669,825
2007 663 2,117,193
As is the case with shares, issuing of pre-emption rights for new shares can be
contested in court (Art. 247). In cases where the issue was against the law or the
Articles of Incorporation, or was done in a substantially unfair manner and is
likely to disadvantage shareholders, an injunction is available. It is also possible
to contest the validity of the issue (Art. 828). An injunction was granted in a case
where a company issued pre-emption rights for new shares to a third party as a
defensive measure against a hostile takeover. However, in another case, the claim
for an injunction was rejected by the court (see section 7Ch).
6. Corporate Governance
(1) Governance structure under the Company Law

The governance structure of companies has undergone a major reform under the
Company Law. The core of the change is that companies are given a wide range
of alternatives in designing the structure. As the scope of companies limited by
shares has been expanded in the Company Law as a result of the abolition of
limited liability companies of the GmbH type, even a company limited by shares
without a board and a corporate auditor can be set up.
However, the broad range of choice primarily benefits small and medium-sized
companies. Insofar as large public companies are concerned, there are only two
types of governance structure available. These are:
Type A Companies with a board, three committees within the board, and an
auditing firm.
Type B Companies with a board, an audit board, and an accounting firm.
Type A companies are those with nomination, audit and remuneration commit-
tees (Art. 2, subpara. 12). This is akin to the US type board system and was intro-
duced by the 2002 amendment to the Commercial Code.
⁵⁴ <http://www.jsda.or.jp/html/toukei/finance/finance.pdf>.
Table 11.5 The choice of governance structure under the Company Law
Non-large companies Large companies
Non-public companies board + corporate auditor board + corporate auditor +

accounting firm
board + audit board board + audit board+
accounting firm
board + corporate auditor + board + 3 committees +
accounting firm accounting firm
board + audit board + board + corporate
accounting firm auditor +
accounting firm
board + accounting adviser
director + corporate auditor
Public companies board + corporate auditor board + corporate auditor +
accounting firm
board + audit board board + 3 committees +
accounting firm
board + corporate auditor +
accounting firm
board + audit board +
accounting firm
board + 3 committees +
accounting firm
However, the number of companies which have adopted this system is small.
According to a survey by the TSE, in 2007, of the 1,687 companies listed in the
first section of the TSE, only fifty companies have this system. The remaining
companies have the system with an audit board.55 This had been the conventional
corporate governance system before the enactment of the Company Law.
(2) The general shareholders’ meeting

(a) The procedure of convocation
The general shareholders’ meeting is empowered to decide on matters provided for
in the Company Law as well as all matters concerning the organisation, manage-
ment, administration, etc. of the company. In companies with a board, the general
shareholders’ meeting is empowered to decide only on matters provided for in the
Company Law and in the Articles of Incorporation (Art. 295, paras 1 and 2).
⁵⁵ TSE, White Paper on Corporate Governance of 2007, <http://www.tse.or.jp/rules/cg/white-

paper/white-paper07e.pdf> p. 13.
Corporate Law 243
The general shareholders’ meeting is convened by a director, i.e. the represen-

tative director (Art. 296, para. 3). Shareholders who have held 3 per cent or more
of the voting shares from six months before the meeting without interruption
are entitled to require directors to convene the general shareholders’ meeting by
specifying the subject matter of the meeting and the ground for its convocation
(Art. 297, para. 1). If the general shareholders’ meeting is not convened with-
out delay after this request, or the meeting with a date within eight weeks of the
request is not announced, the above-mentioned shareholder himself is entitled to
convene the meeting with the leave of the court (ibid., para. 4).
The notice of the general shareholders’ meeting has to be sent out at least two
weeks before the date of the meeting (Art. 299, para. 1). This can be done elec-
tronically, if the shareholder agrees (ibid., para. 3). The board determines details
of the meeting, including the date and venue; agenda; whether shareholders who
cannot attend are allowed to vote in writing, or electronically. If a shareholder, as
above, convenes the meeting, the shareholder determines such matters (Art. 298,
para. 1).
Shareholders who have held 1 per cent or more of the voting shares, or 300
votes without interruption for six months or more, are entitled to request direc-
tors to include a matter in the agenda (Art. 303, para. 2). Shareholders are also
entitled to make a proposal concerning matters on the agenda. However, if the
proposal is against the law or the Articles of Incorporation, or more than three
years have not elapsed since a substantially similar proposal has failed to obtain
the support of more than 10 per cent of the votes, this does not apply (Art. 304).
The company or shareholders who have held a vote of 1 per cent or more for
six months without interruption may apply to court for the appointment of the
comptroller to investigate the procedure of convocation and methods of voting
in the general shareholders’ meeting (Art. 306, para. 1). Upon the report of the
comptroller, the court may order the directors to convene the general shareholders’
meeting, and/or inform the shareholders of the result of the investigation (Art.
307, para. 1).
(b) Votes
Shareholders have one vote per share (Art. 308, para. 1). As an exception, if the
company has adopted the system of a trading unit, one vote is given to one unit
(Art. 308, para. 1). There are no multiple voting shares. Companies do not have
a vote for their own shares that they hold (ibid., para. 2). If the company holds
more than a quarter of the shares of another company which is its shareholder
or by other means substantially control that other company, that company does
not have a vote (Enforcement Order of the Company Law, Art. 67). For example,
a company which has cross-shareholding with another company over a certain
level is not entitled to vote in the other company.
A system of voting by proxy is available (Art. 310, para. 1). The board may
decide to allow shareholders who do not attend the general shareholders’ meeting
to vote in writing. If the company has one thousand or more shareholders, this
system is mandatory (Art. 298, para. 2). In a survey of listed companies by the
TSE, 97 per cent of the respondent companies have this system, which substan-
tially exceeds companies with the system of proxies.56 Reportedly, the amount of
voting in writing which vetoes the management’s proposal, often by institutional
shareholders, is on the increase. It is not uncommon for proposals of the company
management to be dismissed at the general shareholders’ meeting.57 Electronic
voting is also available (Art. 312, para. 1).
At the general shareholders’ meeting, directors, corporate auditors, and senior
executive officers must give necessary explanation on the matter requested by
shareholders. However, this does not apply where the given matter is not relevant
to the subject matter of the meeting, or where, by providing an explanation, the
common interest of shareholders is substantially harmed, or there are other justi-
fiable grounds (Art. 314; Enforcement Order, Art. 71).
There are a simple majority vote, a qualified majority vote, and a special major-
ity vote. In a simple majority vote, shareholders representing more than half of
the votes need to be present, and a majority of the votes is required (Art. 309,
para. 1). Quorum can be set by the Articles of Incorporation, but this seldom
takes place in practice. The Company Law has introduced a restriction in this
respect. In the resolution to appoint or dismiss directors, corporate auditors, etc.,
even by the Articles of Incorporation, the quorum cannot be set below one third
(Art. 341).
In a qualified majority vote, shareholders representing more than one half
of the votes should attend the meeting, and more than two-thirds of the
vote is required. The quorum can be reduced to one third by the Articles of
Incorporation (Art. 309, para. 2). In a special majority vote (i) one half or more
of the shareholders who are entitled to vote shall be present, and a majority of
over two thirds is required, or (ii) more than half of all shareholders need to be
present, and a majority of at least three-quarters is required. Resolutions which
require a type (i) majority include the resolution to introduce restraints on share
transfer and share exchange or share transfer. Type (ii) is for the resolution to
introduce or change differential treatments of shareholders in companies with
a restraint on share transfer. There are also cases where the consent of all share-
holders is required, e.g. in cases where the liability of directors, corporate auditors,
etc. vis-à-vis the company is discharged (Art. 424).
(c) General shareholders’ meeting in practice

The General shareholders’ meeting of Japanese listed companies was more of a
formality until the late 1990s. The meeting of most companies took place on
⁵⁶ Kabunushi sōkai Hakusho (White Paper on the General Shareholders’ Meeting) 2007, Shōji-
Hōmu No. 1817, p. 60.
⁵⁷ Ibid., pp. 63–64.
Corporate Law 245
the same day and time, for example the last Thursday of June, and usually lasted
a maximum of 30 minutes without any questions asked. In a case involving a
major trading company, at the general shareholders’ meeting, the front rows were
occupied by employee shareholders in support of the management, and in this
atmosphere it was difficult to ask a question or to oppose the proposals of the man-
agement. A shareholder took an action in court contending that the resolution of
this meeting should be invalidated. The court found that it was questionable that
the procedure and the method of voting in this meeting was compatible with the
way the law expects them to be, but taking into account that since at least share-
holders, including the plaintiff, were given an opportunity to ask questions, this
could not be regarded as substantially unfair.58
However, such a practice became unsustainable as shareholders became
conscious of their rights and became more active. The law was amended to
strengthen the rights of shareholders. Companies are making efforts to commu-
nicate with shareholders more than before.
According to the annual survey of general shareholders’ meetings of 2007, at
the general shareholders’ meeting in 43 per cent of companies, shareholders actu-
ally present at the meeting represented less than 15 per cent of the votes. Only in
22.6 per cent of the companies, were more than 30 per cent of votes represented.59
In 15.6 per cent of companies, the general shareholders’ meeting lasted for less
than 30 minutes, while this used to be the norm for a majority of companies in
the 1990s. In 55.7 per cent of companies the meeting lasted between 30 and 60
minutes.60
One of the problems with general shareholders’ meetings in Japan is the exist-
ence of ‘special shareholders’, i.e. those people who make a living out of extortion
against companies. Often companies paid these shareholders to be silent or sup-
port the management at the meeting. It is a criminal offence for the company to
pay specific shareholders, as it is for shareholders to demand that the company
pay a special benefit (Art. 120, para. 1 and Art. 970). In the 2007 survey, 59 per
cent of the respondent companies acknowledged that there are one to ten ‘spe-
cial shareholders’ whose movements they mark. Only 27.4 per cent of companies
responded that they had no such shareholders.61
(d) Contesting the resolution

There are three types of action contesting the validity of the resolution of the
general shareholders’ meeting: action for the revocation of the resolution, action
for the recognition of the non-existence of the resolution, and action for the rec-
ognition of the invalidity of the resolution. In general, flaws in the procedure are
⁵⁸ Judgment of the Osaka District Court, 18 March 1998, Hanji 1658-180.

⁵⁹ Kabunushi-sōkai Hakusho, supra, pp. 94–95. ⁶⁰ Ibid., p. 83.
⁶¹ Ibid., p. 42.
grounds for revocation, while if the flaws involve the substance of the resolution,
it is a ground for recognition of invalidity.
Those who contend that the resolution of the general shareholders’ meeting
does not exist may bring an action to court for the recognition of the absence of
the resolution (Art. 830, para. 1). Resolutions may be regarded to be non-existent,
if physically there was no resolution, or if the resolution was flawed in such a
substantial manner that it is tantamount to non-existence.62
If the content of the resolution is against the law, an action for the recogni-
tion of its invalidity can be initiated (Art. 830, para. 2). Resolutions against the
equality of shareholders and resolutions delegating the determination of the re-
tirement payment of directors to the board served as a ground for recognition of
invalidity.63
While in these two types of actions there is no restriction on the scope of
persons who have standing, in the action for the revocation of the resolution of
the general shareholders’ meeting, only shareholders, directors (liquidators), cor-
porate auditors, and senior executive officers are entitled to bring an action in
court (Art. 831, para. 1). In order to ensure stability of the resolution, these peo-
ple must bring an action within three months of the resolution (Art. 831, para.
1). This is because this action is available when the flaw in the resolution is not as
serious as in the other two types of actions.
The grounds for this type of action are (Art. 831, para. 1):
• The procedure for the convocation of the general shareholders’ meeting or the
method of resolution is against the law or the Articles of Incorporation, or is
substantially unfair.
• The content of the resolution is against the Articles of Incorporation.
• The resolution is substantially unfair as a result of voting by an especially
interested party.
These include a resolution which did not take into account the right of the share-
holder to request a matter to be included in the agenda, or to present a proposal;
a resolution on a matter which was not on the agenda; a resolution with directors
and others failing to give an explanation despite the request of shareholders; a
resolution adopted without fulfilling the quorum; and a resolution adopted by a
simple majority vote where a qualified majority vote is required.64
The court has discretion to maintain the validity of the resolution even if the
procedure for convening the general shareholders’ meeting or the method of
adopting the resolution was against the law or the Articles of Incorporation, if
the breach was not substantial and does not affect the outcome of the resolution
(Art. 831, para. 2). The Supreme Court held the resolution valid when notice of
the meeting was given six days later than the statutory period, but the plaintiff
⁶² Egashira and Monden, supra, vol. 4, pp. 318–320. ⁶³ Ibid., pp. 322–323.
⁶⁴ Ibid., vol. 4, pp. 327–333.
Corporate Law 247
shareholder was aware that the meeting was to be held in the building where
he resided and failed to take part, while all other shareholders attended it.65 On
the other hand, in a case where the general shareholders’ meeting was convened
by the representative director without the decision of the board and the notice
period was two days shorter than the statutory requirement, the court did not
hold the resolution valid by exercising its discretion.66
(3) Directors and the board

(a) Director
It is mandatory for companies limited by shares to have a director (Art. 326,
para. 1). Public companies, companies with committees, and companies with
an audit board must have a board of directors (Art. 327, para. 1). In these com-
panies, there must be at least three directors (Art. 331, para. 4). Companies with
a restriction on share transfer may provide in the Articles of Incorporation that
directors need to be shareholders, but such a requirement is not allowed in public
companies (ibid., para. 2).
Directors are appointed at the general shareholders’ meeting (Art. 329, para. 1).
Shareholders representing over one half of the votes need to be present, and a
majority vote is required (Art. 341). The same applies to dismissals. When the
appointment of two or more directors is on the agenda, shareholders may pro-
pose resorting to the cumulative voting system, but this can be excluded by the
Articles of Incorporation (Art. 342, para. 1). In almost all listed companies, it is
excluded.
It is possible under the Company Law to issue shares with a veto right regard-
ing the appointment of directors. In such cases, in addition to the vote in the
general shareholders’ meeting, the approval of the shareholders’ meeting of this
class of shares is needed (Art. 323). There can be shares with the right to appoint
a certain number of directors. If this is the case, directors are appointed at the
meeting of this class of shareholders (Art. 347, para. 1).
The period of appointment of directors is, as a rule, up to the last general share-
holders’ meeting after two years of appointment. In companies with committees
within the board, the term is one year (Art. 332, paras 1 and 3).67
Directors can be dismissed any time at the general shareholders’ meeting by
a simple majority (Art. 339, para. 1 and Art. 341). Before the enactment of the
Company Law, a qualified majority vote was required for dismissal. Thus, dis-
missal of directors has become easier, but this can be made stricter by the Articles
of Incorporation. In companies that issued shares with a veto right regarding the
dismissal of directors, in order to dismiss directors, in addition to the approval of
⁶⁵ Judgment of the Supreme Court, 16 June 1980, Hanji 978-112.

⁶⁶ Judgment of the Supreme Court, 18 March 1971, Minshū 25-2-183.
⁶⁷ For non-public companies, it is ten years.
the general shareholders’ meeting, approval at the meeting of shareholders of this
class of shares is required. In companies with shares to appoint a certain number
of directors, dismissal of directors thus appointed requires the approval of this
class of shareholders (Art. 323 and Art. 347, para. 1).
In cases where—despite the fact that a director acted unjustly or against the
law or the Articles of Incorporation in a substantial manner—the proposal to
dismiss this director was rejected at the general shareholders’ meeting, or does not
take effect due to the lack of consent of a specific class of shareholders, sharehold-
ers who have held for six months or more without interruption 3 per cent or more
of the total number of votes of the entire shareholding or 3 per cent or more of the
issued shares may apply to court for the dismissal of this director (Art. 854).
Shareholders who have held a share for six months or more without interrup-
tion may apply to court for an injunction in cases where a director is conducting
business outside the scope of the purpose of the company, or effecting other acts
contrary to the law or the Articles of Incorporation, or is likely to do so and there
is a likelihood of substantial harm being caused to the company (Art. 360, para. 1).
In companies with a corporate auditor or companies with three committees, the
likelihood of ‘irreversible damage’ is required (ibid., para. 3).
In companies with a board (other than companies with committees within the
board), a representative director(s) must be elected from amongst the directors by
the board (Art. 362, para. 3). In companies with committees within the board,
instead of representative director(s), senior executive officers must be appointed
(Art. 402, para. 1).
The relationship between the company and the officers (the directors, the
accounting adviser, and corporate auditors) is that of mandate (inin) (Art. 330).
As such, directors and others have a duty to act as good managers (Civil Code,
Art. 644). Directors owe a fiduciary duty vis-à-vis the company: i.e. the duty to
comply with the law, Articles of Incorporation, and the resolutions of the gen-
eral shareholders’ meeting, and loyally carry out their duties (Company Law,
Art. 355).
In the following cases, directors must disclose material facts regarding the
transactions to the board and seek its approval (Art. 365):
• Effecting a transaction within the area of business of the company for himself
or for the benefit of a third party.
• Effecting a transaction with the company for himself or for the benefit of a
third party.
• Effecting a transaction on behalf of the company with a third party in cases
where there is a conflict of interests between the company and the director, such
as in cases where the company guarantees the debt of the director to a lender.
If directors fail to fulfil their duty, they are liable vis-à-vis the company for the loss
(Art. 423, para. 1). This liability is based upon fault. There are some exceptions
such as the liability of the director for paying benefits to a specific shareholder
Corporate Law 249
(Art. 120, para. 4). If a director effects a transaction in concurrent business, the
profit made by the director via this transaction is presumed to be the loss to the
company. If a director acted in conflict of interest with the company resulting in a
loss, failure to fulfil the duty is presumed (Art. 423, paras 1 and 2).
There were cases where the adequacy of business judgment was at issue. These
include responsibility for the collapse of the company, transfer of the company’s
assets at a low price, acquisition of property at a high price, the appropriateness of
supporting a subsidiary, the failure of investment/speculation, the extending of
an excess amount of loans, loans without appropriate screening, the appropriate-
ness of discharge of debt, etc.
In one case, a director of a bank extended a substantial amount of loans to
a company which was already in de facto collapse and the loan subsequently
became irrecoverable. The court pointed out that whether the collection of infor-
mation and its analysis and examination was reasonable under the circumstances
at the time of the act should be tested in light of the knowledge and expertise
expected of a director of a bank, and found the director liable.68
In companies other than those companies with committees within the board,
the amount of remuneration, bonuses, and other benefits payable to directors—or
if the amount is not fi xed, the method of calculating it—are to be deter-
mined by resolution of the general shareholders’ meeting, if not by the Articles of
Incorporation (Art. 361, para. 1). Disclosure of this amount is not sufficient because
in most listed companies; only the maximum total amount of remuneration of all
directors is disclosed and approved.
(b) Representative directors

The board must appoint representative directors from amongst the directors (Art.
362, para. 3). Representative directors are empowered to effect all judicial and
extra-judicial acts involving the business of the company (Art. 349, para. 4).
In companies with committees within the board, instead of representative
directors, there are senior executive officers (shikkō-yaku) who are appointed by
the board, but not necessarily from amongst the directors (Art. 402, paras 1 and 2).
Senior executive officers make decisions on the matters delegated to them by the
decision of the board, and execute the business of the company (Art. 418). On
average, such companies listed in the TSE have 12.6 senior executive officers, of
which 2.2 are representative senior executive officers. Senior executive officers may
be directors at the same time, but if the number of such directors is too many, this
will endanger the role of the board as a supervisory body. The senior executive
officer cannot be a member of the audit committee. The average number of senior
executive officers combining directorship is 3.3.69
⁶⁸ Judgment of the Sapporo High Court, 2 March 2006, Hanji 1946-128.

⁶⁹ J. Yokoyama, ‘Iinkai-Secchi-Kaisha no Shikkō-Yaku no Jittai (The Actual State of Senior
Executive Officers in Companies with Committees within the Board)’, Shōji-Hōmu, No. 1819, pp.
37–39.
(c) The board (of directors)

The role of directors differs in companies with a board and without a board of
directors. In companies with a board, only the representative director and other
directors selected by the board execute the business of the company (Art. 363,
para. 1), while in companies without a board, directors execute the business of
the board (Art. 348, para. 1). In companies with committees within the board,
directors, as a rule, do not execute the business of the company (Art. 415). The
board in such companies is intended to perform a supervisory role.
The chairperson of the board is the president in 85 per cent of the companies,
while in most of the remaining companies, the chairman of the company chairs
the board meetings.70
The board (except in companies with committees within the board) has the
power to:
(i) determine the execution of the business of the company;
(ii) supervise the carrying out of duties by directors;
(iii) appoint and dismiss representative directors (Art. 362, para. 2).
Matters which fall within exclusive jurisdiction of the board (decision-making
in significant matters involving the execution of business) include the following
(ibid., para. 4):
(i)disposal or acquisition of significant assets;
(ii)borrowing of a large amount;
(iii)appointment and dismissal of important employees;
(iv) establishment, change, and abolition of branches and other organisational
units;
(v) significant matters involving the issuing of bonds;
(vi) introduction of a system to ensure compliance of the carrying out of duties
by directors with the law and the Articles of Incorporation.
The last item has been incorporated under the influence of the US Sarbanes-
Oxley Act.
The decision of the board is adopted by a simple majority. The quorum is
over one half of the directors who are entitled to vote. Both the quorum and the
threshold of the vote can be increased by the Articles of Incorporation. Interested
directors may not vote (Art. 369, paras 1 and 2).
A new system of a vote by ‘special directors’ was introduced in the Company
Law. In companies with six or more directors of which at least one is an external
director, in making a decision on items (i) and (ii) of the above, the board may
select three or more directors (‘special directors’) and let them decide the matter
⁷⁰ Ibid.
Corporate Law 251
by more than one half of them being present, and the support of a majority of
those who are entitled to vote (Art. 373, para. 1).
The Japanese board system was introduced in 1950 and was based upon the US
system existing at that time. Therefore, the Japanese system is often categorised as
a single tier system in contrast to the Continental system, where together with the
executive board there is a supervisory board. However, since 1950, the US board
system has changed significantly. The business is now carried out by executive
officers, while the board primarily performs supervisory functions. In Japan, it
was different. Until recently, the characteristics of the Japanese board were:
• The combination of business execution and supervision functions in a single
body—the board.
• The existence of a large number of directors, but the power being concentrated
in several senior directors.
• Directors promoted from within the employees, and almost no externals.
With the increasing awareness of the rather lax system of corporate governance,
and growing shareholder activism, reform of the board system began in the late
1990s. At that time of slow economic growth, slimming down the board in order
to ensure quick decision-making and implementation was needed. The size of
the board has become much smaller than before. While in the 1990s, companies
with more than forty directors were not uncommon, according to the TSE survey
of 2007, the average number of directors of the companies listed in the first sec-
tion of the TSE was 9.66.71
The position of executive officers was introduced in a number of companies
and the function of directors was partly delegated to them. This was intended
to separate business execution from supervision. Executive officers represent the
business and administrative departments and are not members of the board.
While in the past, directors in most cases maintained the position of head of a
particular business or administrative division, now the latter is left to executive
officers.
It should be noted that the position of executive officer does not have a legal
basis. It is a position which companies have voluntarily created. This is in contrast
to the position of senior executive officer, which is a statutory position in com-
panies with three committees on the board.72 What has not changed is that most
of the directors are promoted from within the ranks of employees, and external
directors are rare.
In companies with committees within the board, the role of the board is dif-
ferent. It is more supervisory than executive. The board determines the basic
⁷¹ TSE, White Paper, supra, p. 14.

⁷² Executive officers should not be confused with senior executive officers. In Japanese, the
terminology is confusing: shikkō-yakuin and shikkō-yaku. In the TSE White Paper of Corporate
Governance, the term executive officer is used in the sense of a senior executive officer, supra, p. 33.
policy of business and supervises the carrying out of duties by senior executive
officers (Art. 416, para. 1). Senior executive officers execute the business of the
company, and when empowered by the board, make decisions on the execution
of business (Art. 418).
Each committee comprises three or more members. The members are
appointed from amongst the directors by the board. At least half of the members
of each committee must be external directors (Art. 400, paras 1–4). In a major-
ity of companies, each committee has three to five members. The nomination
committee has the largest average number of members (4.12), followed by the
remuneration committee (3.90), and then the audit committee (3.53). It should
be noted that in a majority of companies, the chairman of a majority of the com-
mittees is an insider.73 The appointment of external directors is mandatory in
companies with committees within the board, since a majority of each committee’s
members must be ‘externals’.
The Company Law defines external directors as:
Directors who are not a business executing director of the company or its subsidiary, their
senior executive officer, manager, or an employee, and have, in the past, not occupied
such a position in these companies (Art. 2, subpara. 15).
In companies with corporate auditors among TSE listed companies, 42 per
cent of companies—of which 2 per cent were companies with committees within
the board—have an external director. However, excluding those companies in
which external directors are mandatory, in a majority of companies the num-
ber of external directors was one.74 Of the external directors, over 80 per cent of
them are from another company. Attorneys, accountants, and academics are also
appointed as externals.75
(4) Corporate auditors

Corporate auditors supervise the carrying out of duties by directors (Art. 381,
para. 1). As a rule, companies with a board must have a corporate auditor (Art. 327,
para. 2). In addition, large companies must have an audit board comprising of
three or more corporate auditors.
Until recently, the improvement of corporate governance has been pursued
by reinforcing the system of corporate auditors. In the late 1980s when Japan
was urged by the United States to introduce external directors, there was strong
resistance from the business community, and in the end external auditors were
introduced. The strengthening of the corporate auditor system culminated in the
formation of the audit board comprising of three or more corporate auditors. A
majority of them must be external auditors (Art. 335, para. 3)
⁷³ TSE, White Paper, supra, pp. 30–32. ⁷⁴ Ibid., p. 15. ⁷⁵ Ibid., p. 17.
Corporate Law 253
Corporate auditors are appointed and dismissed by the general shareholders’

meeting (Art. 329, para. 1). However, in order to dismiss a corporate auditor, a
qualified majority vote of shareholders is required (Art. 343, para. 4, Art. 339,
para. 1 and Art. 309, para. 2)). Companies may issue classes of shares with the
right to veto the appointment of a corporate auditor, or to appoint a corporate
auditor. The term of office of corporate auditors terminates at the end of the
last general shareholders’ meeting in the fourth year of appointment (Art. 336,
para. 1).
Corporate auditors audit the carrying out of duties by directors (Art. 381,
para. 1). For this purpose, corporate auditors are entitled to procure a report
concerning the business from directors and employees, or investigate the state of
business and finance. Corporate auditors may also require the same of the sub-
sidiaries, or conduct investigations into their business and finances. However,
subsidiaries may refuse to comply, if there is a justifiable ground to do so (Art.
381, paras 2–4).
(5) Derivative action (shareholders’ action)

In a derivative action, shareholders are allowed to pursue the liability of directors
vis-à-vis the company on its behalf. In addition to the recovery of the loss to the
company, this system also functions as a deterrent against neglect of duties and
wrongdoing by directors and other officers of the company. It has been pointed
out that this is especially the case in derivative actions initiated by shareholders
of listed companies in Japan. The amount of claimed compensation tends to be
much higher than the amount that defendants can reasonably afford.
Shareholders who have held a share for six months without interruption before
taking action are entitled to require the company, in writing, to initiate an action
to pursue the liability of directors, accounting adviser, corporate auditors, senior
executive officers, accountants, founders, directors and corporate auditors in the
establishment procedure, and liquidators. However, if the action is intended for
the unjust benefit of the plaintiff shareholder, or a third party, or to cause dam-
age to the company, this does not apply (Art. 847, para. 1). Previously, derivative
action was available only against directors, but the 2005 Company Law expanded
the scope of people whose liability can be pursued by a derivative action.
If the company does not take any action within sixty days of the request, the
shareholder who made the request is entitled to initiate an action in pursuit of
liability of the above people (ibid., para. 3). If, by waiting sixty days, there is a
likelihood of irrecoverable loss caused to the company, the shareholder may ini-
tiate an action straight away (ibid., para. 5). When initiating an action in such
cases, the plaintiff must inform the company. The company, in turn, is under an
obligation to inform other shareholders.
The ground of action against directors is the neglect of duty, i.e. the breach
of fiduciary duty or the breach of the duty to act as a good manager. So far, the
court found directors liable in cases such as an unlawful share buy-back, un-
lawful loans, production and sales of contaminated medicine, remuneration of
directors without the resolution of the general shareholders’ meeting, failure to
supervise a rogue trader and the failure to report irregularities to the financial au-
thority, payment to an extortionist and assumption of debts, and the sale of food
containing prohibited ingredients.
The system of derivative action was introduced into Japan in 1950 from the
United States. Since the introduction of the system, it was seldom used for more
than forty years. The total number of shareholders’ actions between 1950 and
1993 was thirty-three. This was primarily because the amount of stamp duty pay-
able for the action was calculated on the basis of the contested amount. This could
be substantial, while the plaintiff/shareholder does not directly benefit even if the
plaintiff wins. There was no real incentive for shareholders to initiate an action.
The only case of derivative action where the plaintiff shareholder won during
this period was the Mitsui Mining case where the liability of directors who had
caused the company to buy back shares from a shareholder opposing the merger
was at issue. Share buy-back was in principle against the law at that time. The
company paid an above the market price and purchased shares from this share-
holder. It took fifteen years for the case to be finally decided by the Supreme
Court in favour of the shareholder.76
The situation changed in the early 1990s. During the ‘bubble economy’ in the
second half of the 1980s, companies resorted to equity finance which diluted
the share of existing shareholders. Then the ‘bubble’ burst, and many companies
were left with enormous debt. Shareholders who had been neglected had good
reason to pursue the liability of directors. In a celebrated case involving a major
securities company, the court ruled that the stamp duty in this case should not
be calculated on the basis of the contested amount, but should be regarded as
incalculable, and therefore, set at 8,200 yen. This coincided with the SII Talks
with the United States in 1989/1990, in which Japan was urged to strengthen
minority shareholders’ rights, including the facilitation of derivative action. The
Commercial Code was amended accordingly, and the amount of stamp duty for
a derivative action was set at 8,200 yen.
As a result of this change, the number of derivative actions increased, but not
as much as some people had feared. On the other hand, the amount of claimed
damages has soared. According to a fairly comprehensive statistical survey of
shareholders’ actions published in 2004, the total number of shareholders’ actions
in the six and a half years following 1993 was seventy-five. In twenty-four cases,
the claimed amount was over 10 billion yen.77 In one case, damages of 1,650 bil-
lion yen were claimed (Japan Airlines case).
⁷⁶ Judgment of the Supreme Court, 9 September 1993.

⁷⁷ C. Nunoi et al., ‘Kabunushi-daihyo-soshō no Jittai-bunseki (The Statistical Analysis of
Shareholders’ Action)’, in Japan Law Foundation (ed.), Kaisha-Hōsei kara mita Funsō no Kaiketsu to
Kaihi (Dispute Resolution and Avoidance from the Corporate Law Perspective) (Tokyo, 2004), pp. 41–77.
Corporate Law 255
According to this survey, of the seventy-one cases of shareholders’ actions after

1993, there were only two cases (one of which involved a non-listed company) in
which the plaintiff won. In four cases (one listed company), part of the plaintiff ’s
claim was acknowledged. In fifteen cases involving listed companies, the parties
settled. In thirty-nine cases, the plaintiff lost the case (including the order to
place a deposit, withdrawal, and dismissal of action by court).
As can be seen above, it is not common for the plaintiff to win in a deriva-
tive action. Up to 2007, there have been less than ten cases where directors were
found fully or partly liable.78 This may be attributed to the limited availability
of evidence to the plaintiffs. In many cases, the parties settle at a much lower
amount than that claimed. For example, in the Sumitomo Corporation case, while
the claimed amount was 200 billion yen, the parties settled at 43 million yen.
When endorsing settlement, the court must inform the company. The company
has two weeks to file an objection against settlement (Art. 850, para 2.).
When derivative action was facilitated in 1993, companies feared that the
system might be abused. In order to prevent abusive actions, the court is empow-
ered to order the plaintiff to place a deposit (security for action) if the defendants
present a prima facie case that the plaintiff is acting in bad faith. Although the
court is fairly cautious in ordering deposit placement, when the order is made the
amount can be substantial. There are a sizeable number of cases where the plain-
tiff failed to place a deposit and withdrew.
One of the highest amounts of damages acknowledged by the court before
2008 was in the Daiwa Bank case, where the court of first instance ordered the
defendants to pay 775 million US dollars’ worth of damages. This was a case
where a rogue trader in the bank’s US subsidiary caused a substantial loss, but the
bank failed to report it to the US authority and as such had a large fine imposed
upon it, eventually having to close its operation in the United States. The failure
to prevent such an incident, including the failure to put a proper supervisory
mechanism in place and to take necessary actions after the incident was a ground
for the pursuit of liability. However, as a result of the conversion of the bank into
a subsidiary of a holding company, the plaintiffs, with the loss of standing in
view, were forced to settle at 250 million yen. Under the Company Law, in such a
situation, the plaintiff shareholders can continue the lawsuit (Art. 851).
In 2008, there were three cases where the defendants were ordered to pay a
substantial amount of damages. In the case involving Duskin, which runs a
doughnut chain, selling food with unlawful additives was at issue. Two directors
who—even after they became aware of the existence of unlawful additives—
continued to sell the products were ordered to pay 10.6 billion yen.79 In the
⁷⁸ Shiryō-ban Shōji-Hōmu, 2008, No. 6, p. 103ff contains a fairly comprehensive list of deriva-
tive actions up until the end of 2007.
⁷⁹ Judgment of the Osaka High Court, 18 January 2007. Certiorari was rejected by the Supreme
Court. See also H. Matsui, ‘Duskin Kabunushi-Daihyo Soshō Jiken no Kentō (An Analysis of the
Duskin Derivative Action Case)’, Shōji-Hōmu No. 1834, p. 4ff.
Yakurt case, a director in charge of finance invested in derivatives without the
knowledge of the board and lost. He was ordered to pay 6.7 billion yen. Finally,
in the Janome Sewing Machines case, five directors were ordered to pay 58.3 bil-
lion yen for paying an extortionist and assuming debts for him.80
Liability of directors can be capped by the resolution of the general sharehold-
ers’ meeting after the incident, or by the Articles of Incorporation in advance, but
only in cases where the director had acted in good faith and without gross negli-
gence. The limitation can be up to six years of remuneration and other income for
representative directors, four years for other directors, and two years for external
directors (Arts 425 and 426).
7. Mergers and Splitting of Companies
(1) Mergers
(a) Mergers in Japan
Japanese companies were not known for active M&A activities in the past.
However, there has been a significant increase in the number of M&A cases since
the late-1990s.
3,000
2,500 IN-IN
IN-OUT
2,000
OUT-IN
1,500
1,000
500
0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1–8
OUT–IN: Foreign-capital acquirer—Japanese-capital target
IN–OUT: Japanese-capital acquirer—Foreign-capital target
IN–IN: Japanese-capital acquirer—Japanese-capital target
Figure 11.1 Trends in the number of M&A cases since 1985

Source: RECOF.81
⁸⁰ Nikkei, 25 October 2008.

⁸¹ <http://www.recof.co.jp/english/column/ma_trend.html>.
Corporate Law 257
However, these were mostly backward orientated ‘restructuring’ of businesses

on a friendly basis, rather than M&A based upon a proactive business strategy.82
Concerning mergers between Japanese companies, if a company whose gross
assets are above 10 billion yen and another company whose gross assets are above
1 billion yen are involved, reporting to the Fair Trade Commission (hereinafter
‘FTC’) which is in charge of implementation of competition law, is mandatory.
In the Financial Year 2006, there were seventy-four reported cases of mergers
between Japanese companies above this threshold. All mergers were mergers by
absorption and not by setting up a new company. 45 per cent of the mergers
involved the amount of assets after the merger being between 10 billion and 50
billion yen. Mergers with the gross assets after the merger being over 100 billion
yen accounted for 14.9 per cent (eleven cases).83 Mergers involving listed compa-
nies are not common—usually less than twenty cases per annum.
Provisions on mergers in the Commercial Code originated from before the
Second World War and were regarded as being complicated while protection of
shareholders and creditors were insufficient. In the 1990s, with the decline of the
economy, M&A came to be acknowledged as an effective means of reorganising
company groups and of making companies more efficient. It was felt that stream-
lining and simplification of the merger procedure were needed. As part of the
government’s programme for regulatory reforms, it was decided to simplify the
merger procedure.84 The Commercial Code was amended in 1997 to this effect.
(b) The procedure

Mergers can take the form of uniting or amalgamating two or more existing com-
panies to form a new company or the absorption of one or more existing compan-
ies by another and the continuing company inheriting the rights and obligations
of the discontinuing company. In Japan, the latter form—merger by absorption—
is common. Almost all cases of mergers reported to the FTC were by means of
absorption.85 The reason for this is reportedly the rate of higher registration tax,
and the need to reapply for the listing and licence in the first method.86
In order to merge, a merger agreement needs to be prepared, approved by a
qualified majority vote at the general shareholders’ meeting, the procedure for
the protection of creditors be taken, and the merger registered.
The Company Law provides for mandatory and optional terms to be accommo-
dated in the merger agreement. The mandatory terms for a merger by absorption
include the following (Art. 749, para. 1):
(i) Trade name and registered address of the parties.
⁸² <http://www.recof.co.jp/column/ma_trend.html>.
⁸³ FTC, Annual Report of 2006, <http://www.jftc.go.jp/info/nenpou/h18/H18_top.html>.
⁸⁴ Ueda, supra, p. 255.
⁸⁵ FTC, Annual Report 2006, supra.
⁸⁶ E. Ueda, supra, pp. 2–15.
(ii) If the continuing company is to provide shareholders of the company being
absorbed with cash, pre-emption rights for new shares, etc. in exchange for
the shares of the latter company, their details.
(iii) If subpara. (ii) is applicable, allocation of cash etc. to those shareholders.
(iv) If the company being absorbed has issued pre-emption right for new shares,
details of pre-emption rights for new shares or cash to be provided by the
continuing company to those who hold such pre-emption rights for new
shares.
(v) If subpara.(iv) is applicable, allocation of cash etc. to the holders of pre-
emption rights for new shares.
(vi) The date on which the merger takes effect.
Concerning subpara. (ii), if the payment is made by shares of the continuing com-
pany, the number of shares to be paid, or the method of determining the number
of shares, the amount of capital and capital reserve of the continuing company
must be specified in the agreement. Similarly, if the payment is to be made in
cash, the amount or the method of its calculation needs to be specified.
The ratio of merger is the core of the merger agreement. In Japan, it often
happens that when the merger is agreed in principle and announced, the ratio is
yet to be agreed, and the determination is often left until a very late stage. The
parties negotiate for a better deal, but in the meantime, the share prices fluctuate
and the shareholders’ interest may be affected.87
Japanese companies often insist that the merger is effected on an equal footing
regardless of the difference in the size of the parties. As a means of accounting, a
share pooling method is preferred to the purchase method which is now the inter-
national norm. With the purchase method one company is purchasing another
company whose assets are to be valued at the current price. This is regarded to be
against the idea of a merger on an equal footing.
If the payment is not made by the share of the continuing company, but by
other means, shareholders of the company which is to be absorbed lose the
opportunity to share the increase in the value of the company (synergy value)
resulting from the merger. The Company Law provides that the ratio of merger in
such cases should be determined on the basis of the value of the companies which
are parties to the merger, but in addition, this synergy value should be allocated
properly.88
During the period of two weeks before the general shareholders’ meeting
and six weeks after the date on which the merger takes effect (for the com-
pany which is being absorbed, until the date on which the merger takes effect),
⁸⁷ Nikkei, 17 April 2003. In November 2000, two major chemical companies announced a plan
for the integration of the management. At this stage, neither parties had a financial adviser who
would advise them on the value of the company. For two years, they could not agree on the ratio,
and eventually, the plan was cancelled.
⁸⁸ Egashira and Monden, supra, vol. 4, p. 56.
Corporate Law 259
a document accommodating the content of the merger agreement and other

relevant matters, including the appropriateness of the terms of merger, must be
placed at the head office of the company which is to cease to exist for inspection
(Art. 782, para. 1 and Art. 794, para. 1). Shareholders, holders of pre-emption
rights for new shares, and creditors are entitled to inspect and receive a copy of
the document.
The merger has to be approved by a qualified majority vote of shareholders of
both the continuing company and the company which is to cease to exist (Art. 783,
para. 1, Art. 795, para. 1, and Art. 309, para. 2, subpara. 12). If the shareholders of
the company which is to cease to exist are to be paid by quota of companies limited
by quota, a unanimous vote is required (Art. 783, para. 2).
(c) Appraisal rights

Shareholders who are opposed to the planned merger are entitled to require the
respective company to purchase their shares at a fair price (Art. 785, para. 1
and Art. 797, para. 1). Those shareholders are required to inform the company
of their objection before the general shareholders’ meeting and to have voted
against the merger (ibid., para. 2). The appraisal right must be exercised between
twenty days before the date the merger takes effect and the day before this date
(ibid., para. 3).
The purchase price is to be negotiated between the shareholder and the com-
pany, but if an agreement is not reached within thirty days of the date of the
merger, the shareholder or the company may ask, within thirty days, for the court
to determine the price. The court practice was that fair price meant the price
if there had not been a resolution of merger. However, the Company Law has
adopted the concept of ‘fair price’, which is to reflect the ‘synergy value’ resulting
from the merger. The method of calculation is yet to be determined.
(d) Procedure for the protection of creditors

Since creditors may be affected by the merger, there is a procedure for the pro-
tection of creditors. The merging companies are under an obligation to publicly
announce the merger in the Official Gazette and also to invite known creditors
to come forward, if they object to the merger. By the Articles of Incorporation,
companies may decide not to notify known creditors individually, but to make
an announcement in the daily papers, or by electronic means, in addition to the
announcement in the official gazette (Arts 789 and 799, paras 1 and 2).
If a creditor objects to the merger, the company needs to either (i) repay the debt
even if it is not due, (ii) instead, provide collateral, or (iii) deposit an appropriate
amount to a trust company or banks involved in trust business (ibid., para. 5).
However, the novelty since the 1997 amendments is that if there is no likelihood
of the merger harming the creditors, these measures are not required (Art. 789,
para. 5 and Art. 799, para. 5).
(e) Simplified procedure and summary procedure

In 1997, a new simplified procedure for mergers was introduced. This is available
in a merger by absorption where the total amount of (i) the number of the shares
provided to the shareholders of the discontinuing company at the time of merger
multiplied by the value of net assets per share, and (ii) book value of the bonds of
the continuing company and other assets provided to them at the time of merger
does not exceed 20 per cent of the net assets of the continuing company (Art.
796, para. 3). This procedure is not available if the amount of debt exceeds the
assets of the extinguishing company and in some other cases. If more than one
sixth of the shareholders express their objection to the merger in the procedure
for the exercise of appraisal rights, the simplified merger procedure cannot be
utilised (ibid., para. 4).
What is simplified in the procedure is that the shareholders’ meeting of the
continuing company is not required; the shareholders’ meeting of the discon-
tinuing company is still required as well as the disclosure procedure and the
procedure for the protection of creditors. The shareholders’ appraisal rights
remain.
Summary procedure is a new system introduced by the Company Law. In
Japan, mergers between listed companies are rare. More than half of the mergers
involving a listed company were those in which a listed company absorbed its 100
per cent subsidiary.⁸⁹ It was thought to be excessive to require the same formal
procedure for merger in such cases. In cases of mergers by absorption, if one of
the parties holds 90 per cent or more of the votes of the other company (‘spe-
cial controlling company, Art. 468, para. 1), a summary procedure is available.
Shareholders’ approval is not required in the subordinate company, regardless
of whether it is the continuing or discontinuing company after the merger (Arts
784, para. 1 and 796, para. 1).
(f) Registration
In mergers by setting up a new company, the merger takes effect by registration.
In mergers by absorption, the rights and obligations of the extinguishing com-
pany shift to the continuing company in a comprehensive manner on the agreed
date on which the merger takes effect (Art. 750, para. 1). In cases where regis-
tration or other formalities are required to set up a right against a third party,
such formalities are needed for the continuing company to set up a right which it
inherited from the extinguishing company against a third party.
⁸⁹ Yamaichi Securities Economic Institute (ed.), Zōshi-Hakusho (White Paper on Corporate

Finance) 1996 (Tokyo, 1997), p. 8, pp. 70–71.
Corporate Law 261
(g) Invalidity of a merger

Mergers can be invalidated only by an action in court within six months of the
date of the merger taking effect (Art. 828, para. 1). The standing is limited to
shareholders, directors, senior executive officers, auditors, liquidators, admin-
istrators, and creditors who were opposed to the merger (Art. 828, para. 2).
The district court of the place of the main office of the continuing company
(or a newly set up company) has an exclusive jurisdiction (Art. 835). Once the
judgment takes effect, it is binding on everybody—not only on the parties
(Art. 838).
The Company Law does not specify the grounds for invalidity. By interpret-
ation, typical grounds for invalidity of merger include:
(i) defects in the merger agreement;
(ii) absence of, or defects in, the resolution of the shareholders’ meeting approving
the merger;
(iii) absence of the decision of the board;
(iv) failure to make documents available for inspection, or the providing of false
information;
(v) unlawful allocation of shares to shareholders of the company which is to
cease to exist;
(vi) failure to implement the procedure for the protection of creditors;
(vii) mergers contrary to competition law.
Whether the inappropriateness of the merger ratio serves as a ground for inval-
idity has been discussed for some time. The majority view was that it was not a
ground for invalidity, since, after all, the merger is approved by a qualified major-
ity vote of shareholders, and if there was a flaw in the procedure, its invalidity
could be contested on other grounds. Shareholders who are against the merger
are entitled to appraisal rights.
There is a High Court decision which ruled that the inappropriateness or
unfairness of the merger ratio is not in itself a ground for the invalidity of a
merger.90
(h) Takeover law

Hostile takeover is rare in Japan. Although there have been some abortive hostile
takeovers in the past decade, as of 2008, there has not been a successful hostile
takeover involving a listed company in Japan.
⁹⁰ Judgment of the Tokyo High Court, 31 January 1990, upheld by the judgment of the Supreme
Court, 5 October 1993.
The reason for this can be explained in the following way. First, hostile
takeovers were not regarded in the business community as a legitimate means of
business. This is related to the perception of the ownership of the companies. In
a company system dominated by insiders, it was inconceivable for them to envis-
age and accept the company being taken over by outsiders. Secondly, technically,
it is difficult to take over a listed company. This is not only because it requires a
significant amount of finance, but also because of the shareholding structure. In
most listed companies, there is no large block of shares held by a specific share-
holder—shares are spread among a large number of shareholders. A significant
portion of shares is in ‘friendly hands’, i.e. stable shareholders who will normally
not part with these shares.
The system of takeover bids (in the US, tender offer, hereinafter, ‘TOB’)
was introduced in Japan in 1971 by the amendment to the then Securities and
Exchange Law based upon the US model. In fact, this was not because there was
a real need for it, but because the legislature simply wanted to be prepared for po-
tential takeovers.91
Unlike in the US, TOB was seldom used for hostile takeovers. It was primarily
used for the reorganisation of corporate groups. However, since the late 1990s,
cases of hostile takeovers via TOB began to emerge.92 Particularly in the last four
to five years, there has been a shift towards more proactive M&A. This is dem-
onstrated by the abortive takeover bid of Hokuetsu Pulp Mill by Oji Paper. A
commentator pointed out that because a leading company in the industry such as
Oji initiated a hostile bid, the hostile takeover in Japan has been recognised as a
means of implementing business strategy.93
As the economic difficulties deepened in the late 1990s and continued into
the 2000s, the further facilitation of corporate reorganisation became ne-
cessary. The second step after the simplification of the merger procedure, as
envisaged by companies, was the diversification of payment for takeovers. Th is
enables ‘triangular merger’, i.e. merger by offering shares of the parent com-
pany. The target company merges with a subsidiary of the acquiring company.
Shareholders of the absorbed company are given the shares of the parent com-
pany, instead of the shares of its subsidiary. Th is method is particularly useful
in cross-border (out-in) mergers. The draft Company Law incorporated this
system.
However, in light of some celebrated hostile takeover cases since 2003, there
has been growing concern amongst companies that, as a result of triangu-
lar takeovers as part of the diversification of payment, hostile takeovers may
⁹¹ I. Kawamoto and Y. Otake, Shōken-Torihiki-Hō Tokuhon (Thesis on the Securities and Exchange
Law), 7th edn (Tokyo, 2006), p. 197.
⁹² The first case of hostile takeover involved the takeover of a Japanese company by Cable and
Wireless in 1999. The target company was not a listed company.
⁹³ T. Arai (ed.), Nihon no Tekitai-teki Baishū, (Hostile Takeovers in Japan) (Tokyo, 2007), p. 4.
Corporate Law 263
increase.94 In their opinion dated 16 November 2004, Keidanren pointed out

as follows:
. . . As a result, there is a risk that the corporate value would be harmed by a bidder who
is not committed to the long term interest of the company, and aspires to pursue its own
short term interest. Shareholders, employees, the local community would be substan-
tially disadvantaged . . .
It was concluded that reasonable defensive measures should be urgently put in
place by companies.95 Thus, while the new Company Law entered into force in
2006, the part on diversification of payment for mergers finally took effect on
1 May 2007. The first case of triangular merger involved the takeover of Nikko
Securities by the Citi Group in 2007.
In light of the near absence of hostile takeovers, the need for takeover law in
Japan had never been felt acutely. It was only in 2004 that defensive measures be-
came an issue as a result of the celebrated cases of attempted hostile takeovers.96
Generally, in the developed world, there are two different approaches to
defensive measures when a company’s management is faced with an unsolicited
bid.97 In the US, board-controlled defensive measures to resist the bid are avail-
able. This is explained as a mechanism for defending shareholder value and other
stakeholders by protecting the company’s longer-term strategic interests. Usually
it takes the form of a shareholder rights plan or colloquially, ‘poison pills’. If an
unsolicited bidder acquires shares above a certain threshold, the scheme is trig-
gered, and shareholders other than the bidder are allowed to exercise the option
and acquire shares at an advantageous price. As a result, the shareholding of the
bidder will be diluted. In contrast, in the UK, by virtue of Rule 21 of the City
Takeover Code, the board of the target company is not allowed to frustrate the
bid. The EU Takeover Directive takes a similar approach.98
In Japan, when a potential wave of hostile takeovers was seen to be imminent,
discussions regarding defensive measures began. However, the focus was on the
availability or feasibility of the US-type rights plans under Japanese law, and not
on the principal matter of whether defensive measures should be available to the
board in the first place.
With the series of amendments made to the Commercial Code, various
potential defensive measures had become available since the early 2000s. In
⁹⁴ T. Aizawa, ‘Gappei to Taika no Jūnan-ka no Jitsugen ni itaru Keii’ (The Process of the
Realisation of the Flexibilisation of Payment for Mergers), Shōji-Hōmu 2007, No. 1801, p. 9.
⁹⁵ <http://www.keidanren.or.jp/japanese/policy/2004/085.html>
⁹⁶ K. Takei et al. (eds), Kigyō-Baishu Bōei Senryaku (Strategy on the Defence of Company) (Tokyo,
2004). Takei has already pointed out the potential of the new share system to act as/provide
defensive measures in 2001 in Atarashii Kabushiki Seido (New System of Shares) (Tokyo, 2001).
M.Ishiwata, supra, Shōji-Hōmu, 2004, No. 1716, p. 4ff. See also G. Puff and K. Yamamoto, ‘Nihon
ni okeru Poison Pill no Gutaika no Kentō’, Shōji-Hōmu, 2004, No. 1694, p. 16ff.
⁹⁷ D. Kershaw, ‘The Illusion of Importance: Reconsidering the UK’s Takeover Defence
Prohibition’, International and Comparative Law Quarterly, 2007, vol. 56, pp. 267–307.
⁹⁸ Council Directive 2004/25 [2004] OJ L142/12, 12–23 (EC).
2001, pre-emption rights for new shares were fully liberalised. A wide range of
new classes of shares were introduced. It was thought that various types of rights
plan widely available in the US would now be available in Japan as well.99
The problem in Japan was that firstly, although parts and components of defen-
sive measures became available, the schemes themselves had not been developed
and had to be built from scratch. Secondly, the permissibility of the scheme had
never been tested in court, nor were there any guidelines. Thirdly, rules regarding
the implementation of defensive measures were totally absent.
In 2005, a celebrated case of a hostile takeover took place in the absence of
a takeover law. Fuji Television Network initiated a TOB against the Nippon
Broadcasting System (hereinafter, the ‘NBS’) in order to purchase a majority of
the NBS shares on 18 January. This was a friendly use of TOB which was common
in Japan. While NBS was the parent company of Fuji Television, they intended
to reverse this relationship. On 8 February, before the trading at the TSE started,
a company called Live Door announced that it had purchased 29 per cent of
the issued shares of the NBS via ToSTNet-1, a system of off-floor trading at the
TSE, and suddenly emerged as a major shareholder without resorting to the TOB
procedure.
As a defensive measure, on 23 February the NBS issued pre-emption rights for
new shares by the decision of the board and allocated them to Fuji Television. If
all options were to be exercised, the number of issue shares of the NBS would be
2.44 times more than the present and Fuji Television would be holding up to 59
per cent of those shares, while Live Door’s shareholding would be reduced from
42 per cent to 17 per cent.
Live Door sought an injunction against the issue of a pre-emption right for
new shares. The district court accepted the argument of the applicant that the
issue of pre-emption rights for new shares was substantially unfair, and granted
an injunction. The court ruled that in cases where there is a dispute over the con-
trol of the company, if a pre-emption right for new shares is issued and allocated
to a third party in a way which would reduce the shareholding of a specific share-
holder, and which is primarily aimed at maintaining control by the incumbent
management, unless there are special circumstances which justify it from the
viewpoint of protecting the interests of the company and the common interest of
shareholders, it would constitute a substantially unfair issue.
NBS further appealed to the High Court. NBS argued that the issue of pre-
emption rights for new shares was a matter of business judgment as to what should
be better in terms of corporate value. This is in line with the mainstream view on
defensive measures in the US.100 However, the High Court upheld the original
⁹⁹ Anon. ‘Shinkabu yoyakuken ni kannsuru Kaisei Shōho to Kigyō Baishū Bōei-saku no

Tayō-ka (The Amendment to the Commercial Code re: Pre-Emption Rights and Defensive
Measures against Takeovers)’, Shōji-Hōmu, 2001, No. 1615, pp. 28–29.
¹⁰⁰ H. Matsui, ‘Torishimariyaku no Shinkabu-Hakkō Kengen (The Power of Directors to Issue
New Shares) (2)’, Hōgaku-Kyōkai-Zasshi, vol. 114, p. 687.
Corporate Law 265
decision based upon the argument regarding the distribution of power between
the board and the shareholders: the board, which is a mere executive body, should
not be allowed to usurp the power of the shareholders. Mistrust on the part of
the court of the board’s capability to make a neutral and fair decision is obvious
here. After all, Japanese boards are mostly composed of insiders and seldom have
independent directors.
At first glance, these decisions seem to maintain the traditional approach of
the primary purpose rule, which was prevalent in the 1990s. The primary pur-
pose rule presupposes that a share issue and similar measures primarily for the
purpose of the maintenance of control by the incumbent management are inher-
ently unfair and unlawful.101 As an exception, these measures are permitted if
there are some overriding business needs, such as financing. Therefore, in the
past, companies justified the new share issue by citing the need for finance. On
occasions where the acquirer was suspected of being a greenmailer, the court
readily acknowledged that there was a need for finance.
This approach may have been valid when the hostile takeover was substan-
tially rare and greenmailing was not uncommon, but not any more, when genu-
ine legitimate M&A activities by companies are taking place. It is not surprising
that a view which squarely acknowledges the legitimacy of the board’s power to
adopt defensive measures and act for the maintenance of control under some cir-
cumstances, rather than resorting to dubious financial needs, emerged as M&A
became a reality in Japan. According to a proponent of this view, it is part of the
business judgment of the incumbent management to adopt measures against a
potentially harmful takeover. If the board is not pursuing its own interest, but
instead issues new shares in pursuit of the legitimate interest of the company, this
should be allowed as an exercise of business judgment.102
In the NBS case, whether the primary purpose of the issue was the mainten-
ance of control or not was not in question; it was the primary purpose. The prob-
lem was whether there were instances where the issue of the pre-emption rights
for new shares by the board for the purpose of maintenance of control was justifi-
able, and whether this case qualified as an exception.
It should be added that in the NBS case, one of the factors which cast doubt
on the fairness of the acquisition of shares by Live Door was the way it acquired
a substantial amount of shares and suddenly emerged as a major shareholder.
If, out of the blue, a shareholder with almost 30 per cent of the shares could
emerge and proceed to take over a company, a market which allows such a sur-
prise attack to take place cannot be regarded as being adequately regulated. It
could be said that the absence of proper regulation was abused by Live Door.
¹⁰¹ This view is shared by the balance of power doctrine in Germany which influenced this deci-
sion. See the Holzmüller case (BGHZ 83, 122). U. Hüffer, Aktiengesetz, 8th edn (Munich 2008) §
119, Rdn. 16–20.
¹⁰² Matsui, supra.
The loopholes of the then Securities and Exchange Law were hurriedly closed
in 2006.103
The court in the NBS case actually had in view the work in progress of the
‘Corporate Value Research Group’ which was set up in October 2004 by the
Ministry of Economy, Trade and Industry, who, in conjunction with the Ministry
of Justice had been working on rules regarding pre-bid defensive measures. Based
upon the report of this Group, the Guidelines on Defensive Measures against
Hostile Takeovers were adopted in 2005.
The Guidelines set out three principles:
(i) The goal of defensive measures should be the maintenance and improvement
of the corporate value and the common interest of shareholders.
(ii) Defensive measures should be disclosed in advance and should be based
upon the reasonable will of the shareholders.
(iii) Defensive measures should be of a necessary nature and reasonable.
As a corollary to (i), defensive measures are to be used primarily against greenmail-
ing, asset-stripping, compulsory two-step takeovers, etc. By virtue of (ii), defensive
measures should be introduced by the general shareholders’ meeting and not by
the board. However, the Guidelines do not exclude the possibility of the board
introducing such measures, but if they are to be introduced by the board, there
has to be a means to cancel them in accordance with the will of shareholders. Item
(iii) means that defensive measures should not be excessive. It should be noted that
the Guidelines specifically allowed companies to treat the bidder differently from
other shareholders. This is not against the equality of shareholders.
If the permissibility of defensive measures adopted after the contest over con-
trol had started (post-bid measures) was at its most precarious under the NBS
decisions, the strengthening of defensive measures put in place before the bid, i.e.
pre-bid measures, such as a rights plan, were thought to have a better chance.104
According to the latest survey, 381 listed companies introduced some defensive
measures as of 31 July 2007. In June 2008, it was reported that the number of
companies with a pre-bid measure in place exceeded five hundred.105 The very
fact that of the three thousand plus listed companies, less than 20 per cent of
them have put defensive measures in place demonstrates the perception on the
part of the companies of the uncertainties involving the permissibility of such
measures.
The second case involving the lawfulness of defensive measures—the Bulldog
Sauce case—took place in 2007.106 This was the first case involving the lawfulness
of defensive measures which reached the Supreme Court, but its significance as
a precedent is limited. In this case, the substance of the measure was the same as
¹⁰³ Kawamoto and Otake, Shōken-Torihiki-Hō Tokuhon, supra, p. 113.

¹⁰⁴ Nikkei, 28 February 2005.
¹⁰⁵ Nikkei, 13 May 2008.
¹⁰⁶ For an English translation, see <http://www.courts.go.jp> by H. Oda.
Corporate Law 267
the fairly widely practised ‘advance warning type’ rights plan. Normally, such
defensive measures are put in place as a pre-bid measure, but in this case, it was
introduced after the bidder had emerged.
In this case a foreign investment fund initiated a TOB against a listed company.
The company responded by introducing a defensive measure. The fund sought an
injunction. The District Court dismissed the application for an injunction on the
ground that even if the bidder’s share would be diluted by the measure adopted
by the company, at least when the measure was adopted by a qualified majority
vote of shareholders and the bidder was compensated, it would not be against the
equality of shareholders.107 The Supreme Court upheld this judgment.108
What was unique in this case was that (i) the post-bid measure was introduced
by a qualified majority vote of shareholders, and (ii) the bidder who was to be
treated discriminatorily was compensated. In the end, the bidder was paid 2.1
billion yen. Therefore, the significance of this judgment as a precedent is limited.
The revised Corporate Value Group Report of June 2008 stressed that the
bidder should not be paid off.109
(2) Splitting of companies

(a) The procedure
Companies may split all or part of their rights and obligations related to their
business and transfer them to an existing company or a newly set up company
(Art. 2, paras 29 and 30). This system was introduced in 2000 in order to facili-
tate intra-company group reorganisation. Already in 2002, there were 224 cases
of splitting of companies.110 In most cases this was used to reorganise the struc-
ture of group companies, e.g. spinning off part of the business to a subsidiary.
Some companies used this as a means of selling part of the business.111 Splitting a
company can also be used for creating a holding company by spinning off all the
business to subsidiaries.
The part of the company which has been split may become a newly estab-
lished entity (shinsetsu-bunkatsu), or may become part of another company by
‘absorption’ (kyūshū-bunkatsu). In some cases, several companies split part of
their businesses and jointly create a new company.
¹⁰⁷ Decision of the Tokyo District Court, 28 June 2007, Shōji-Hōmu No. 1805, p. 51. However,
it can be questioned whether a qualified majority vote of shareholders can justify any kind of
discriminatory treatment. M.Nakahigashi, ‘Bulldog Sauce case to Kabunushi-Sokai Ketsugi no
soncho (Bulldog Sauce case and the Significance of the Shareholders’ Resolution)’, Jurist, No.
1346, p. 21.
¹⁰⁸ Decision of the Supreme Court, 7 August 2007, Minshū 61-5-2215.
¹⁰⁹ <http://www.meti.go.jp/report/data/g80630aj.html>.
¹¹⁰ RECOF (ed.), M&A Data Book 1988–2002 (Tokyo, 2003), p. 9.
¹¹¹ Nikkei, 14 August 2002.
Splits resulting in setting up a new company on a large scale are not common.
According to the Fair Trade Commission, there were thirty-three reported
cases of company split in 2007—all of them were split by absorption.112 In
2006, of the nineteen cases of split, eighteen involved split by absorption; there
was only one case of companies splitting their business and jointly setting up a
company.113
Splitting of a company was used in the creation of one of the largest finan-
cial groups. In 1999, Fuji Bank, Daiichi Kangyo Bank, and Industrial Bank of
Japan announced their plan for integration. In the first phase, the three banks
set up a holding company by share transfer and became 100 per cent subsidiar-
ies of Mizuho Holding. Naturally, there is no point in having three banks with
a similar portfolio to be under a holding company. These three banks needed to
be reorganised. In the second phase, these banks were reorganised into different
types of banks—a retail bank, corporate bank, and investment bank. For this
purpose, each of the above three banks was split into three parts, and those split
parts were transferred to the three new banks.
In splitting a company, the procedure is (i) the preparation of a plan for the
split (split by setting up a new company), or a contract of split (split to an existing
company), (ii) the making available of relevant documents for inspection, (iii) the
approval by the general shareholders’ meeting, (iv) the procedure for the protection
of creditors, and (v) registration.
In a split by setting up a new company, a plan for the split needs to be prepared.
The following items are required to be accommodated in the plan (Art. 763):
• details of the company to be set up, including the trade name and the location
of the main office;
• other matters to be determined by the Articles of Incorporation of the new
company;
• names of the directors, corporate auditors, and the accountant at the time of
establishing the new company;
• matters concerning the assets, debts, employment contracts, and other rights
and obligations that the newly set-up company is to receive from the splitting
company;
• matters concerning the shares of the newly set-up company to be provided to
the splitting company or the means of calculating it and the capital and reserves
of the newly set-up company;
• if bonds of the newly set-up company are provided to the splitting company,
their details;
¹¹² <http://www.jftc.go.jp/info/nenpou/h19/19top00001.html>.
¹¹³ <http://www.jftc.go.jp/info/nenpou/h18/H18_top.html>.
Corporate Law 269
• if the new company is jointly set up by two or more splitting companies, the
ratio of allocation of the shares of the newly set-up company to these splitting
companies.
In spinning off part of the company to an existing company, a contract needs
to be concluded between the parties. The contract must include the following
(Art. 758):
• the trade name and address of the parties;
• matters concerning the assets, debts, employment contracts, and other rights
and obligations that the absorbing company is to receive from the splitting
company;
• if shares are inherited by the absorbing company, their details;
• details of the payment made to the splitting company (e.g. if shares of the
absorbing company are provided to the splitting company: the classes and the
number of these shares, or the means by which they are determined, and the
amount of the capital and reserves of the absorbing company).
The plan or the contract of a split must be made available for inspection by share-
holders and creditors in the same manner as mergers (Art. 782, para. 1, Art. 794,
para. 1, and Art. 803). The plan or the contract is subject to approval at the general
shareholders’ meeting of the splitting company and, in cases of spin-off to another
existing company, also by shareholders of that company by a qualified majority
vote (Art. 783, para. 1, Art. 795, para. 1, and Art. 804, para. 1). Shareholders who
are opposed to the split are granted an appraisal right as in the case with merger
(Art. 785, para. 1, Art. 797, para. 1, and Art. 806, para. 1). Procedure for the pro-
tection of creditors of those companies is also available (Art. 789, para. 1, Art. 799,
para. 1, and Art. 810, para. 1).
(b) Simplified procedure and summary procedure

Although, as a rule, shareholders’ approval is required in company split, as an
exception, in cases where the book value of the assets which are to be transferred
to another company or to a new company do not exceed one fifth of the gross
assets of the splitting company, shareholders’ approval of the splitting company is
not needed (Art. 784, para. 3 and Art. 805). There is a simplified procedure and
a summary procedure (Art. 468, para. 1, Art. 784, para. 1, and Art. 796, paras 1
and 3).
(c) Labour relations

As a rule, rights and obligations of the splitting company are transferred either
to the newly set-up company or to the absorbing company. This also applies to
employment contracts. When the system of company split was introduced, a new
Law on the Succession of Employment Contracts in Splitting of Companies was
enacted at the same time.114 According to this Law, the splitting company must
inform the employees who were primarily working in the split part, or were des-
ignated by the plan or contract to be transferred, at least two weeks in advance of
the shareholders’ meeting for approval of the split (Art. 2, para. 1). Employment
contracts involving employees who were primarily working in the part which is
being split, and are included in the contract of splitting or the plan for setting
up a new company as a result of the split, are transferred to a new company or
an existing company without the consent of the employee (Art. 3). Those who
did not primarily work for the split part, but whose contract was included in the
contract of split or the plan for the setting up of a company as a result of the split,
are entitled to object to the transfer (Art. 4, para. 1).
8. Financing of Companies
(1) Characteristics of corporate finance in Japan

One of the major characteristics of the way that Japanese companies were financed
was the heavy reliance on bank borrowing. This was supported by the main bank
system whereby most listed companies had a particular bank to take care of their
finance. The overall trend of corporate finance in Japan was a shift from indirect
finance to direct finance.115
During the period of high economic growth from the mid-1960s to the 1970s,
there was a strong demand for finance while the accumulation of capital on the
part of companies was insufficient. Because the stock market was yet to be fully
developed at that time, companies resorted to bank borrowing.
In the 1980s, with the rapid appreciation of the yen, companies expanded
their overseas business which, due to the accompanying business and currency
risks, led to the review of the traditional method of corporate finance and a shift
to equity finance. Since the Plaza Agreement in 1985—which led to the fur-
ther appreciation of the yen against the US dollar by the liberalisation and inter-
nationalisation of the financial markets—equity finance by companies sharply
increased in the second half of the 1980s. Japan was going through the period
of a ‘bubble economy’. In 1985, the total capitalisation of the first division of the
TSE was around half of GDP. By 1989, it became 1.5 times as much as GDP. The
prices of land increased in the same way.116
The amount of equity finance sharply increased during this period. Between
1980 and 1984, the total amount of equity finance was 15.3 trillion yen; in con-
trast, between 1985 and 1989, this amount reached 66.6 trillion yen. This was
mainly comprised of convertible bonds, followed by warrant bonds and new share
¹¹⁴ Law No. 103 of 2000, amended by Law No. 87 of 2005.

¹¹⁵ N. Hirai, ‘Corporate Finance’ in J. Ujiie (ed.), supra, p. 207.
¹¹⁶ Y. Noguchi, Bubble no Keizai-gaku (Economics of the Bubble) (Tokyo, 1992), pp. 22–23.
Corporate Law 271
issues.117 New shares were issued not at par as they used to, but at market price.
These developments marked a major shift from debt finance to equity finance.
However, it should be noted that this involved only those listed companies which
could raise finance in the stock market.
Naturally, the ‘bubble economy’ did not last long. It collapsed in late 1989/early
1990 when the share prices and land prices fell sharply. By 1992, the amount of
total capitalisation of the market returned to its 1985 level. In the 1990s, after the
bubble burst, the volume of equity finance fell sharply. Underwriting companies
asked business companies to postpone their equity finance plans, and the public
offering of shares was virtually halted until 1994. The Nikkei average, which
reached 39,000 yen in 1989, fell by 50 per cent by 1992, and even further to one
third in the late 1990s. The total amount of equity finance fell to one third of the
level of the late 1980s. Companies turned to the banks, but with the introduc-
tion of the Bank of International Settlement’s capital adequacy rules, banks were
reluctant to extend loans. The banking crisis in the late 1990s made bank borrow-
ing even more difficult. Bank borrowings have also constantly decreased since
1985. In 2000, finance via the issuing of securities (debt and equity) surpassed
the amount borrowed from the banks.118 On the other hand, the public offering
of shares never recovered to the level of the late 1980s. In 2007, the amount raised
by the public offering of shares was less than 10 per cent of the amount in 1989.
Instead, third-party issue has been steadily increasing since 1991.119 Since 2006,
Table 11.6 Corporate finance in Japan
Year Share issue (excl. IPOs) Bonds with pre-emption Warrant Bonds
rights for new shares of
a convertible type
No. Amount No. Amount No. Amount

(million yen) (million yen)
1997 42 87,998 30 270,480 0 0

1998 27 180,812 10 246,580 0 0
1999 96 686,739 33 592,453 0 0
2000 81 628,571 26 357,349 0 0
2001 37 748,831 28 300,621 0 0
2002 45 213,029 22 427,960 0 0
2003 63 413,176 20 72,330 0 0
2004 154 863,423 78 561,453 0 0
2005 121 824,442 128 889,689 0 0
2006 104 1,237,153 130 1,422,570 0 0
2007 52 425,379 42 127,192 0 0
¹¹⁷ Hirai, supra, pp. 209–211. ¹¹⁸ Securities Market in Japan 2006, supra, p. 5.
¹¹⁹ TSE Factbook, supra, p. 75.
equity finance—including the issuing of bonds with pre-emption rights for new
shares—has been further decreasing. The reason is said to be that companies
are concerned that equity finance may expose the company to the risk of hostile
takeover.120
As for bonds, currently the majority of bonds issued are convertible warrant
bonds. The issuing of straight bonds increased in the 1990s, but has been at the
same level since 2000. As compared to convertible warrant bonds, the amount
is very small. Bonds with pre-emption rights for new shares of a non-convertible
type are no longer issued.121
(2) Issuing of bonds

Before the 2001 amendment to the Commercial Code, together with straight
bonds, equity type bonds such as convertible bonds and warrant bonds were
issued. By the 2001 amendment, the concept of convertible bonds and warrant
bonds was replaced by the concept of bonds with pre-emption rights for new
shares. The Company Law followed this (Art. 2, subpara. 22). There are straight
bonds and bonds with pre-emption rights for new shares. The latter are bonds
with pre-emption rights for new shares which are inseparable from the bond
itself. The previous separable type of warrant bonds are now regarded as a simul-
taneous issue of the bond and the pre-emption right for new shares.122
Of those, bonds in which the pre-emption right for new shares can be exercised
with the payment from the redemption of bonds (the issue price of the bond is set
at the same amount as the exercise price) correspond to the previous convertible
bonds, and are called bonds with pre-emption rights for new shares of a convert-
ible type.
Bonds can be secured or non-secured. Since the default of corporate bonds
during the recession in the 1920s, all corporate bonds in Japan had been secured
except for bonds issued by banks and power utilities until a blue chip company
issued unsecured convertible bonds in 1979. There is a Law on Secured Bond
Trusts which lists nineteen types of security available to secure corporate bonds.
It was also possible to create a security on the joint stock company as a whole as
collateral (Law on Security on the Enterprises). A trust agreement is concluded
between a bank (trust bank) as the bond manager and the issuing company. The
bond manager holds the security right for the benefit of all bond holders.
In 1987, the eligibility requirements for issuing unsecured bonds were relaxed
in combination with the introduction of the credit rating system. There are now
credit rating agencies such as the Rating and Investment Information (R&I),
¹²⁰ Egashira and Monden, supra, vol. 2, p. 345.

¹²¹ Japan Securities Dealers Association, <http://www.jsda.or.jp/html/toukei/finance/finance.
htmlhttp://www.jsda.or.jp/html/toukei/finance/finance.html>.
¹²² Moving Strike Convertible Bonds (MSCB) is also available.
Corporate Law 273
Moodies, and the Japan Credit Rating Agency, which are active in this area.123
Still, as a rule, bonds were secured. However, in recent years, it is reported that
unsecured bonds with pre-emption rights for new shares and unsecured straight
bonds issued by blue chip companies are increasing.124
Previously, the issuing of bonds was subject to stringent requirements set by an
informal body called the Bond Issuing Committee, primarily comprising banks.
Trust banks had more say than the underwriters—securities companies.125 When
issuing non-secured bonds, the issuer was invariably required by the Committee
to undertake some restrictive terms such as negative pledge.126 In 1993, the sys-
tem of issuing bonds was substantially streamlined and liberalised. The Bond
Issuing Committee was abolished in 1995.
As part of this reform, the appointment of a bond management company was
made mandatory in bond issues. This is continued under the Company Law (now
‘bond manager’), unless the value of each bond is over 100 million yen, or the
total amount of the bonds divided by the minimum price of the bond is less
than 50 (Art. 702). In order to issue bonds, the issuer appoints a lead manager
(securities company), an underwriting syndicate, a bond manager or a financial
agent, and at the same time obtains a credit rating. Bond managers are banks or
trust banks. They have the rights and duties to manage bonds after the bonds are
issued in the interest of the bond holders and are empowered to effect any judicial
or extra-judicial acts in order to ensure the realisation of the claims (Art. 705).
Bond managers have statutory powers as well as contractual powers provided in
their contract with the issuing company.
Since bond managers in Japan are mostly banks who are at the same time
creditors, there is a possibility of conflict of interests. Under the Company Law,
bond managers owe a fiduciary duty vis-à-vis bond holders and are under an
obligation to act as a good manager in relation to them (Art. 704). If the bond
manager acted against the Company Law or the resolution of the bondholders’
meeting and caused loss to the bond holders, the bond manager is held liable
(Art. 710, paras 1 and 2).
Before these reforms, due to stringent regulations, only selected blue chip
companies were allowed to issue bonds. Prior to the reform in 1993, default on
corporate bonds had never happened in Japan (there were some defaults on bonds
issued overseas to institutional investors). In cases where default was likely, it was
customary for the main bank or the bond management company to purchase
the bonds at face value. From 1993, this practice was discontinued. Since then,
there have been cases where as a result of the collapse of a company, domestic
¹²³ Securities Market in Japan 2006, supra, p. 94.

¹²⁴ Egashira and Monden (eds), supra, p. 346.
¹²⁵ Zōshi-Hakusho, supra, p. 8, pp. 70–71.
¹²⁶ M. Tatsuta, Kaisha-hō (Company Law), 7th edn (Tokyo, 2000), p. 251.
straight bonds defaulted.127 The most controversial default involved the collapse
of a supermarket chain in 2001. This company, Mycal, defaulted on straight
bonds of around 350 billion yen, including the bonds sold to individual investors
of 90 billion yen. The bonds were issued in the previous year with the face rate of
3.25 per cent. The rating at the time of the issue, October 2000, was BBB. Foreign
rating institutions had never rated this company to be suitable for investment and
even reduced the rating at the time of issue, but a Japanese rating institution rated
it higher. This was downgraded only in June 2001. Another problem concerned
the role of the bond management company. In this case, the main bank was the
bond management company. This bank required the issuing company to provide
security for the loan that it extended to the company, but did not ask the com-
pany to secure the bonds.128
It is now common for companies to issue bonds of over 100 million yen each
without a bond manager, but with a fiscal agent who handles payment only. This
is intended for the reduction of issuing costs and avoidance of liability of the
bond manager.129
By the Company Law, the scope of companies eligible to issue bonds is no
longer limited to companies limited by shares. Companies limited by quota (gōdō
kaisha) may also issue bonds. Despite the deregulation on the issuing of bonds
since the mid-1990s, bonds are still utilised primarily by blue chip companies.130
BBB-rated bonds, not to mention junk bonds, are not offered in the market.
Apprehensive of the risk of default, most institutional investors do not invest in
assets other than those rated A or higher.131
For short-term finance (less than one year), commercial papers are widely
issued.
(3) New share issues

Share issues and the disposal of the company’s own shares are now covered in the
same section of the Company Law as the offering of shares. When offering newly
issued shares or shares that they are disposing of, either to the public or a third
party, a company is required to determine the following (Art. 199, para. 1 and
Art. 202, para. 1):
• the number of offered shares;
• the price to be paid in or the method of calculating it;
• if there is an in-kind contribution, the content of the contribution and its
value;
¹²⁷ Hitrai, supra, p. 214.

¹²⁸ <http://www.nikko-am.co.jp/invest/column/b_number/011106_2.html>; see also Mainichi
Interactive, 18 November 2001.
¹²⁹ Egashira and Monden, supra, p. 354. ¹³⁰ Ibid., p. 349.
¹³¹ Ibid., p. 94.
Corporate Law 275
• the date or period of payment;

• matters related to the increase of the capital and capital reserve when issuing
shares.
As a rule, these matters need to be decided at the general shareholders’ meeting,
but this can be delegated to the board in public companies. In such cases, the
maximum number of shares to be issued and the minimum amount of payment
need to be determined (Art. 200, para. 1).
In public companies, the above matters can be determined by the board.
However, this does not apply when the shares are issued at an especially advanta-
geous price to the subscribers (Art. 201, para. 1). Here, a qualified majority vote
of shareholders is required (Art. 199, para. 2 and Art. 309, para. 2, subpara. 5).
If the share issue or the disposal of their own shares is against the law or the
Articles of Incorporation or was substantially unfair, shareholders are entitled to
seek an injunction (Art. 210). Shareholders are also entitled to contest the valid-
ity of the issue (Art. 828, para. 1, subparas 2 and 3). In order to ensure the above
rights of shareholders, where a public company offers shares to the public or a
third party, the offer has to be publicised, or notified to shareholders at least two
weeks prior to the date of paying in (Art. 201, paras 3 and 4).
There are three types of new share issues, depending on the allocation of the
newly issued shares: (i) the rights issue, (ii) the third party issue, and (iii) the
public offer.
(a) Rights issue

In the case of a rights issue, newly issued shares are offered to the existing share-
holders, i.e. existing shareholders are given pre-emptive rights to newly issued
shares. Until the 1970s, this was the primary method of financing companies.
Newly issued shares were allocated to existing shareholders at par value. This
method was taken over by the public offer at the market price for public compan-
ies in the 1980s. Now, it is primarily used by non-public companies.
Incidentally, in Europe, shareholders are in principle given a pre-emptive right
to new shares. In Germany, in order to deprive shareholders of the pre-emptive
right a qualified majority vote is needed. The same applies to the UK.132 In non-
public companies, unless the Articles of Incorporation delegate it to the board, a
qualified majority vote of the general shareholders’ meeting is needed for a rights
issue (Art. 202, para. 3).
(b) Third party issue

Shares may be offered to a specific third party. This happens, for example, when
a venture company seeks finance from a ‘venture capital’ financing emerging
¹³² Egashira, Kabushiki-kaisha-Hō, supra, pp. 526–527.

Table 11.7 Equity Financing (All Listed Companies)
Rights Offerings Public Offerings Preferred Stocks and Private Placements Exercise of Warrants Total
Tracking Stocks and Stock Options
No. of Amount No. of Amount No. of Amount No. of Amount No. of Amount Amount
Cases Raised Cases Raised Cases Raised Cases Raised Cases Raised Raised
(¥100mil.) (¥100mil.) (¥100mil.) (¥100mil.) (¥100mil.) (¥100mil.)
1998 1 3 12 2,842 5 4,710 35 6,963 35 883 15,403

1999  – 35 3,709 27 70,122 86 24,448 74 2,624 100,904
2000 2 82 36 5,728 5 1,373 56 9,720 94 1,077 17,982
2001 3 320 18 12,014 6 2,281 71 5,671 92 380 20,668
2002  – 21 1,562 40 10,293 79 5,015 82 2,763 19,634
2003 3 19 40 5,726 75 25,371 103 2,335 126 397 33,850
2004 4 44 80 7,544 55 14,105 142 6,242 241 1,041 28,977
2005 3 42 80 6,661 52 14,312 175 8,101 360 1,819 30,937
2006  – 75 14,546 34 6,003 176 4,736 409 1,647 26,933
2007 1 80 71 4,708 13 8,155 141 6,841 376 1,716 21,501
Jan.  – 3 647 1 114 13 468 175 104 1,334
Feb.  – 7 323 – – 15 470 187 130 924
Mar.  – 11 650 1 200 31 451 182 136 1,437
Apr.  – 7 256 – – 9 329 151 56 642
May  – 2 28 2 2,900 7 288 170 111 3,327
June  – 9 1,123 2 3,505 9 526 175 200 5,356
July  – 4 172 – – 8 202 176 159 534
Aug.  – 8 458 2 1,080 12 1,008 145 133 2,681
Sept.  – 7 598 1 70 8 187 113 528 1,384
Oct.  – 5 379 – – 12 1,075 114 51 1,507
Nov.  – 2 5 3 266 7 1,323 132 33 1,630
Dec. 1 80 6 63 1 18 10 508 137 69 740
Notes: 1. The day after payment is used as the base date and the amount raised by the companies listed on Japan’s stock exchanges (excluding the companies listed on Hercules at
Osaka and Jasdaq) is aggregated by the base date.
2. Monthly figures in the number of cases for ‘Exercise of Warrants and Stock Options’ are cumulative numbers. Annual figures are the number of companies.
Corporate Law 277
businesses, or a troubled company is being rescued. As a rule, the party to whom

the shares are to be allocated can be determined by the board.
With this method, shares are issued to specific third parties. This can be done
by decision of the board unless the issue price is especially favourable to the
third party, when it is subject to a qualified majority vote of shareholders (Art.
199, para. 3 and Art. 309, para. 2, subpara. 5). This is practised primarily when
the issuing company intends to consolidate its relationship with a specific com-
pany or as a rescue operation of the issuing company—the rescuer subscribes to
the newly issued shares. Also this was previously the primary means of defence
against greenmailers until the 1990s.
(c) Public off er
In a public offer, newly issued shares are offered to unspecified and many people.
The shares are underwritten by securities companies. Shares are issued at market
price or a price slightly lower than the market price.
While it had been common practice for companies to issue shares at par value
to the existing shareholders, this was replaced by the offering of shares to the pub-
lic at market price in the late 1980s. In addition to business companies, banks
issued large amounts of new shares in order to meet the capital adequacy ratio set
by the BIS.
A commentator pointed out as follows:
. . . while new shares are issued at market prices, the practise of paying out dividends
to shareholders on the basis of the par value of stocks has become deeply entrenched.
Therefore, there has emerged among the investing public the idea that the issuance of
new shares at market price is a gimmick for raising corporate funds at a cheap cost.
Indeed, there are criticisms that corporate issuers have issued too large an amount
of shares and have been neglecting to make fair distribution of their profits to their
shareholders.133
With the collapse of the market in 1990, the public offering of shares was
halted for three years. When equity finance was resumed, the then Ministry of
Finance issued guidelines in 1993 requiring an ROE of over 10 per cent to effect
public offer at market price.134 However, this was abolished in 1996 as part of the
ongoing deregulation, in exchange for better disclosure. For example, securities
companies are required to ask the issuing company to disclose the purported use
of the finance to be raised, its effect on the profit of the company in the future,
the state of the distribution of profits to the shareholders, its dividend policy, and
past equity finance.135
¹³³ Securities Market in Japan 1994, p. 41.

¹³⁴ Securities Market in Japan 2001, p. 44.
¹³⁵ Zōshi-Hakusho 1996, supra, pp. 29–30.
Equity finance has never returned to the 1980 level. In 1985, the total amount
was 505.2 billion yen, which reached 5,830 billion yen in 1989, and is now in
2007 at 470.8 billion yen.136
9. Accounting
(1) Accounting documents and financial statements

Regulation of accounting in the Company Law is intended to (i) set the limit for
paying out of surplus, and (ii) provide information on the financial state of the
company to creditors and shareholders.137
Companies must prepare accurate accounting documents in a timely manner
and keep them for ten years (Art. 432). Accounting must comply with the ‘practice
of corporate accounting which is generally accepted as fair and appropriate’ (Art.
431). Before the 2001 amendments, the Code itself had some provisions on the
valuation of assets. However, it was thought that in order to respond to the fairly
frequent changes in accounting practice, it would be better not to provide details
by law. Accounting rules in the Company Law are scarce and are supplemented
by the Rules on Corporate Accounting, which is a ministerial ordinance. Via this
provision, accounting standards such as the ‘Corporate Accounting Principles’
and other accounting standards set by the government Corporate Accounting
Council are made available to companies.
Shareholders who have 3 per cent or more of the entire votes, or of the issued
shares are entitled to inspect and make a copy of the accounting documents
by giving reasons. Unless the shareholder made this request in order to pursue
goals other than the investigation for the protection or exercise of his rights; the
request was made for the purpose of obstructing the execution of business by
the company and to harm the joint interest of shareholders; the shareholder is in
a business substantially in concurrence with the company, or is involved in the
business; the company is not entitled to refuse the request (Art. 433, paras 1 and
2). In a case where a 100 per cent subsidiary of Rakuten Inc., which had initiated
a takeover bid procedure against the Tokyo Broadcasting System (TBS) applied
for inspection of the accounting documents and the book of securities of TBS,
the court found that in cases where a 100 per cent subsidiary, in conjunction with
the parent company, was in substance in a concurrent business with the TBS,
TBS was entitled to refuse the request.138
Companies are mandated to prepare financial statements and other documents
for each financial year (Art. 435, para. 2). These are:
• a balance sheet;
• a profit and loss report;
¹³⁶ TSE Fact Book 2007, supra, p. 40. ¹³⁷ K. Egashira, Kabushiki-Kaisha-Hō, supra, p. 529.
¹³⁸ Judgment of the Tokyo District Court, 20 September 2007, Hanji 1985–140.
Corporate Law 279
• a report on the changes of the amount of share capital during the financial year;
• a business report.
Financial statements are subject to the audit of corporate auditors (Art. 436,
para. 1), and approval of the board (ibid., para. 3). They are then submitted to
the general shareholders’ meeting for the approval of shareholders. Previously,
the proposal for the distribution of profits was one of the financial statements.
However, under the Company Law, the disposal of surplus is possible at any
time during the financial year, so it does not have to be approved by the account
settlement shareholders’ meeting.
Financial statements in Japan were not known for their accuracy due to the
uniquely Japanese accounting standards. They simply failed to reflect the true
state of finance of the companies. For example, until 1999, financial instruments
were not valued at market price, but by acquisition price. International account-
ing firms used to put a legend to their audit opinion, indicating that the audit
was conducted in accordance with Japanese accounting standards and not inter-
national accounting standards. However, in the light of the harmonisation of
international accounting standards, the uniquely Japanese accounting system be-
came untenable.
Consolidated accounting was introduced into the then Securities and Exchange
Law in 1975, but has been treated as an attachment to the accounting documents
of the company in question. It was only in 1997 that this was reversed and the
consolidated account was made the primary document. In 2002, consolidated
accounting was introduced for ‘large’ companies which are subject to the disclos-
ure requirements of the Securities and Exchange Law. The Company Law man-
dates these companies to prepare consolidated financial statements (Art. 444,
para. 3). Currently, the Japanese Financial Services Agency is moving towards
the introduction of the International Accounting Standards by 2011.139
There were institutional changes as well. In the past, the setting of corporate
accounting standards fell within the power of the Corporate Accounting Council
under the Ministry of Finance and later the Financial Services Agency. However,
in other countries, accounting standards are primarily set by a specialised private
sector body independent of the government. In the late 1990s when banks were
in difficulties, the Ministry of Finance introduced accounting standards that
allowed delaying the recognition of debts. This was thought to be inappropriate
and certainly worked in favour of an independent organisation.140 Thus, in 2001,
the Financial Accounting Standards Foundation was set up by contributions
from the private sector and under this organisation, the Accounting Standards
Board of Japan was established.141
¹³⁹ Nikkei, 3 October 2008.

¹⁴⁰ H. Kataki, Atarashii Kigyōo-Kaikei-Hō no Kangaekata (The Idea of the New Corporate
Accounting Law) (Tokyo, 2003), p. 39.
¹⁴¹ <http://www.asb.or.jp>.
(2) Share capital and reserves

The amount of capital is the amount paid in by those who are to become share-
holders at the time of the establishment of the company, or the issue of shares
(Art. 445, para. 1). Up to half of this amount does not need to be capitalised, but
this amount has to be kept as a capital reserve (ibid., para.2). The amount of the
share capital is subject to registration.
The significance of share capital has been largely reduced in recent years.142
There were previously three principles involving capital. These were the princi-
ples of the fulfilment and maintenance of capital, fi xed capital, and stability of
capital. The principle of the fulfilment and maintenance of capital involved a
requirement that the assets of the company should be at least at the level of the
capital and that this should be maintained. For this purpose, subscription was
paid into a designated bank, contribution in kind was subject to strict scrutiny,
and shortage of payment had to be supplemented by promoters. However, there
was a substantial deregulation regarding the setting up of companies. As for the
principle of fi xed capital, because the minimum capital system was abolished by
the Company Law, it has lost its meaning. The principle of stability of capital
remains in that a strict procedure is required to reduce the capital. A qualified
majority of the shareholders’ meeting is needed (Art. 447, para. 1 and Art. 309,
para. 2). However, in cases where the share capital is reduced in order to cover the
deficit, a majority vote at the annual shareholders’ meeting will suffice (Art. 309,
para. 2, subpara. 9).
In Japan, if the company is making a loss, the loss will be covered in the follow-
ing manner and order:143
(i) out of the current profit;
(ii) by the disposal of assets, namely realising hitherto unrealised profits through
disposal of shares;
(iii) use of earned surplus;
(iv) use of capital reserves;
(v) capital reduction.
When reducing the share capital (and the reserves), a procedure to protect the
interests of creditors needs to be followed (Art. 449, para. 1). The company must
publicise the proposed reduction and inform creditors of their entitlement to an
objection within a fixed period of less than two months in the Official Gazette
(ibid., para. 2). As a rule, the company must individually notify known creditors,
but this can be exempted.
The capital reserve comprises (i) the amount paid in by shareholders and not
capitalised; (ii) 10 per cent of the amount of reserve paid out as dividends; (iii)
¹⁴² M. Tatsuta, Kaisha-Hō Taiyō (Outline of Compendium Law) (Tokyo, 2007), p. 369.
¹⁴³ Nikkei, 12 February 2003.
Corporate Law 281
premiums resulting from mergers and other reorganisations, etc. The profit
reserve is a reserve which the company is mandated to form in order to cover a
potential deficit. Companies are under an obligation to accumulate the capital or
profit reserve until the total of capital and profit reserve reaches a quarter of the
share capital (Art. 445, para. 4). All or part of the reserves can be capitalised by a
majority vote of shareholders (Art. 448, para. 1, subpara. 2).
(3) Surplus—paying out of dividends

The significance of the capital may have been reduced in the recent years, but
there is a major role for the capital. The capital and the reserves determine the sur-
plus which the company can distribute to its shareholders.144 There are two such
situations; paying out of dividends and share buy-back. The common denominator
is that these are distributions of the company’s assets to shareholders.
In order to pay out dividends, a simple majority vote of shareholders is required
(Art. 454, para. 1). In companies which (i) have accounting firms as an auditor,
where (ii) the term of directors does not exceed one year, and which (iii) have
a committee of auditors or three committees, matters regarding the payout of
dividends and share buy-back can be delegated to the board by the Articles of
Incorporation (Art. 459).
Dividends can be paid out from the surplus which is determined in accordance
with the Company Law (Art. 461). It is based upon the assets and the book value
of the company’s own shares held by the company, deducted by the amount of
debt, share capital, and reserves with some adjustments. When paying dividends,
10 per cent of the surplus before the payment needs to be set aside either as capital
reserve or profit reserve (Art. 445, para. 4).
As a result of the abolition of the minimum capital requirement, there is a new
rule that if the net assets are less than three million yen, the company cannot pay
dividends (Art. 458).
If the company paid dividends or purchased its own shares while the company
did not have a distributable surplus, directors and others responsible for the pay-
ment are under an obligation to pay back the company the amount paid out,
unless that person proves that he was not negligent in carrying out his duties
(Art. 462, paras 1 and 2).
Japanese companies used to be renowned for meagre dividends. However,
the relationship between companies and investors has been gradually changing.
According to a report by Nikkei, the total of dividends and share buy-back has
reached a historical maximum of almost 50 per cent of the net profit in 2007.
Dividends paid out by listed companies increased by 14 per cent.145 According
to the statistics of the Daiwa Research Institute, the total amount paid out by
¹⁴⁴ P. Davis, Introduction to Company Law (Oxford, 2002), p. 86.

¹⁴⁵ Nikkei, 26 May 2008.
listed companies as dividends and share buy-back in the Financial Year 2007 was
12 trillion yen, which was twice as much as in 2003. The average dividend pay-
out ratio was 29.1 per cent. Although the performance of companies since 2002
has been favourable, the increase was largely attributed to shareholders who have
become more vociferous.146
(4) Surplus—share buy-back

Share buy-back was generally prohibited and allowed only on limited occasions
until 1997. Arguments against share buy-back were that it was against the prin-
ciple of the maintenance of capital since it was basically the return of the contri-
bution to the shareholders and would harm creditors. It may also be against the
equality of shareholders, since a selected few shareholders are given an opportun-
ity to have their shares purchased by the company. If the company is allowed to
hold its own shares, it may lead to market manipulation and/or insider trading.
However, it was pointed out that if the share buy-back is not sourced from capital
or capital reserves, but from the surplus, it should not be a problem. If the shares
are listed and are purchased through the market or by a takeover bid (TOB), it
will not affect the equality of shareholders.
Liberalisation of the share buy-back has been on the reform agenda proposed
by companies for some decades. With the strong backing of the business circle,
exceptions to share buy-back were gradually increased. By the 1997 amendment
to the Commercial Code, for the purpose of assigning the shares to directors or
employees, companies were allowed to buy back shares up to 10 per cent of the
total number of issued shares. A ‘justifiable reason’ for granting stock options
was required. Details, including the names of the persons who are granted stock
options and the price of assignment, had to be disclosed at the shareholders’
meeting. A qualified majority resolution of the general shareholders’ meeting
was required (for buy-back of shares for redemption, the decision of the board is
sufficient).
Even after the 1997 amendments, share buy-backs were still under restrictions
concerning (i) purpose, (ii) procedure, (iii) method, (iv) resources, (v) amount,
and (vi) period of holding. Shares purchased had to be disposed of within ten
years if they were for stock options, and for redemption purposes, they had to be
cancelled immediately.147
Therefore, further liberalisation of the share buy-back was pursued by the
business community. This included the proposal for the liberalisation of treas-
ury stocks.148 Treasury stocks are the company’s own shares purchased by
¹⁴⁶ Asahi, 29 June 2008. ¹⁴⁷ M. Tatsuta, Kaisha-hō, supra, pp. 216–222.
¹⁴⁸ Keidanren (Japan Business Federation), Shōken-Shijō Kasseika Taisaku nitsuite (On Measures
of Invigorating the Stock Market), 23 January 2001, <http://www.keidanren.or.jp/japanese/
policy/2001/002.html>.
Corporate Law 283
the company, but instead of being cancelled, they are held in ‘treasury’ for an
indefinite period with a view to reselling them. The UK Companies Act allows
companies to hold up to 10 per cent of the capital. Amid the deepening recession
in Japan, in April 2001, the Council of Economic Ministers decided that in order
to reinvigorate the stock market, treasury stocks should be legalised and share
buy-back should be further liberalised. Liberalisation of the treasury stock was
made part of the ‘emergency economic measures’.
The resulting 2001 amendment was revolutionary in that it completely liberal-
ised share buy-backs. Treasury stocks also became available. In 2003, it became
possible for the board to buy back shares, insofar as it is empowered to do so by
the Articles of Incorporation.
The Company Law did not fully follow the post-2001 amendment Code, but
allows extensive share buy-back. It distinguishes between share buy-back based
upon the consent of shareholders and share buy-back on other grounds, which
include occasions where the company exercised its rights in relation to shares
with the right of the company to acquire shares held by shareholders; cases
where the company does not approve assignment of shares by a shareholder to a
third party; exercise of the shareholder’s right to require the company to acquire
shares; and requests of shareholders to buy back shares below the trading volume
etc. (Art. 155).
Shares can be purchased from shareholders with the consent of shareholders
(i) from the market, (ii) via the TOB procedure as provided by the Financial
Instruments and Exchange Law, (iii) from all shareholders, or (iv) from a specific
shareholder.
In the last case, the name of this shareholder needs to be disclosed and approved
by the general shareholders’ meeting (Art. 158). Other shareholders are entitled
to ask the company to include them as a seller (Art. 159). Companies with a board
may, by the decision of the board, buy back shares from the market (Art. 165,
paras 2 and 3). If the shares are purchased from all shareholders, a simple major-
ity vote is sufficient, but if the purchase is from a specific shareholder, a qualified
majority vote is required (Art. 156, para. 1 and Art. 309, para. 2). The source of
share buy-back is restricted in the same manner as dividends, i.e. limited to the
distributable surplus (Art. 461, para. 1).
Share buy-back has been steadily increasing since 2002.149 According to a
survey in 2005, more than 80 per cent of the respondents cited the necessity of
reimbursing the surplus to shareholders as the reason for share buy-back. Use for
stock options/corporate takeover was limited.150 According to the TSE survey,
in 2007, 539 companies resorted to share buy-back, which was 100 companies
more than 2006. Of this number, 520 companies have done so by decision of
the board. In the same year, 182 companies disposed of the shares which they
repurchased. In fifty-eight companies, these shares were offered to the others.
¹⁴⁹ Nikkei, 28 August 2006. ¹⁵⁰ Daiwa Investor Relations, 27 January 2006.
In sixty-three companies, shares were used for mergers, share exchange, and
splitting of companies. Only in sixty-seven companies, the repurchased shares
were cancelled, i.e. remaining shares are held as treasury stocks. Furthermore,
the number of shares cancelled was much smaller—less than a half of the amount
purchased. Overall, in a majority of companies, these shares are held as treasury
stocks.151 It has been remarked that the purpose of holding a substantial number
of treasury stocks should be explained by companies.152
¹⁵¹ <http://www.tse.or.jp/market/data/ownshare/0804.pdf>.
¹⁵² Nikkei, 14 June 2008.
12
Insolvency Law
1. Basic Laws
In 2000—immediately after the financial crisis—according to a survey by

Teikoku Data Bank, the amount of corporate insolvency (bankruptcy, settlement,
special liquidation, civil rehabilitation etc.) reached 24 trillion yen in 10,071 cases
(companies with a capital of over 10 million yen). The amount decreased to 16
trillion, but the number of cases increased to 20,052 in 2001. In the mid-2000s,
it has stabilised and the number fell to 5.4 trillion yen and 11,261 cases in 2007.¹
There are three laws governing insolvency: the Bankruptcy Law, the Civil
Rehabilitation Law (Minji-Saisei-Hō), and the Corporate Reorganisation Law
(Kaisha-Kōsei-Hō). While the Bankruptcy Law is for liquidation and payment from
the proceeds of assets sake, the remaining two are designed for rehabilitation.
The existing system of insolvency law in the 1990s originated from the early
twentieth century and had become obsolete. In 1997 the Ministry of Justice pub-
lished a list of issues to be addressed in the anticipated overhaul of the insolvency
system. Initially, a comprehensive reform was planned, but as the state of econ-
omy worsened, a new system intended to rehabilitate medium-sized companies
(and individuals) was introduced as the first step, replacing the Composition Law
of 1927. This is the Civil Rehabilitation Law, which is now widely utilised by
companies and individuals.
This was followed by the Law on the Recognition and Assistance for Foreign
Insolvency Proceedings in 2000, and the new Corporate Reorganisation Law
of 2003. Finally, the Bankruptcy Law of 1922 was replaced by a new Law in
2004.²
In addition to the above laws, the Company Law provides for special liquid-
ation (tokubetsu seisan). In the process of liquidation, if there are circumstances
which substantially obstruct liquidation, or insolvency is suspected, creditors, the
liquidator, corporate auditors, or shareholders may apply to the court for special
liquidation (Arts 510, 511). Once special liquidation is ordered by the court, the
procedure of liquidation is subject to court supervision (Art. 519, para. 1). Other
¹ <http://www.tdb.co.jp/english/news_reports/backnumber2008.html>.
² S. Takagi, ‘Restructuring in Japan’, in International Insolvency Review, vol. 12, No. 1, pp. 1–2.

proceedings including bankruptcy, civil enforcement, etc. are suspended (Art.
515, para. 1). Enforcement of security rights may also be suspended, and set-off
is restricted (Arts 516–518). In this procedure, unlike the bankruptcy procedure,
the liquidator does not have the power to deny the effect of transactions carried
out by a debtor in bad faith.
The company may reach an agreement with the creditors with a majority vote
of the creditors who took part in the meeting, and the consent of those who hold
two-thirds or more of the total value of the votes (Arts 563, 567, para. 1).
2. Bankruptcy Procedure
The enactment of the new Bankruptcy Law was aimed at (i) the speed-up and
streamlining of the procedure, and (ii) ensuring the fairness of the procedure.
The Bankruptcy Law covers the bankruptcy of juridical persons as well as indi-
viduals. Foreign individuals and juridical persons have the same status as their
Japanese counterparts (Art. 3). The previous bankruptcy Law was based upon
reciprocity, but this was abandoned in 2000.
The court of the location of the main place of business has jurisdiction over
the bankruptcy of the debtor/entrepreneur. If the entrepreneur has their main
office overseas, the court of the location of the main place of business in Japan
has jurisdiction (Art. 5, para. 1). In cases where there are 500 or more creditors,
in addition, the district court in the location of the High Court of the region
will have jurisdiction. If there are 1,000 or more creditors, the Tokyo or Osaka
District Courts have a concurrent jurisdiction (ibid., paras 8 and 9).
The bankruptcy procedure is triggered by the debtor’s inability to pay debts
(insolvency). If the debtor ceases to pay, the debtor is presumed to be unable to
pay (Art. 15). For juridical persons, ‘inability to pay’ means either insolvency or
an excess of debts over assets (when the debtor cannot fully repay the debt with
his assets) (Art. 16, para. 1).
Creditors, debtors, and directors of companies limited by shares are entitled to
apply for the initiation of the bankruptcy procedure (Arts 18, 19, para. 1). After
the application, the court is empowered to implement interim measures on the
assets of the debtor upon request of the interested parties or ex officio (Art. 28,
para. 1).
If there is a basis for the commencement of bankruptcy proceedings, the court
renders a decision to commence the proceedings (Art. 30, para. 1). Simultaneously
with the declaration, a bankruptcy administrator(s), normally an attorney, is
appointed by the court; and the period for the presentation of claims, the date
of the first creditors’ meeting to report the financial state of the debtor, and the
period for the examination of claims are set (Art. 31, para. 1).
All assets which the debtor owns at the time of the commencement of the
proceedings comprise the bankruptcy estate (Art. 34, para. 1). This applies not
Insolvency Law 287
only to assets located in Japan, but also to overseas assets (ibid.). Until 2000, the
previous Law had maintained the territorial principle.
The debtor is under an obligation to give an explanation regarding the bank-
ruptcy if so requested by the bankruptcy administrator or the creditors’ com-
mittee, or on the grounds of the resolution of the creditors’ meeting (Art. 40).
Importantly, the duty to disclose significant assets on the part of the debtor has
been strengthened by the new Law. The debtor must submit a document which
lists significant assets such as the real property, cash, securities without delay
after the commencement of the proceedings (Art. 41). This is backed up by a
penalty of a maximum three years’ imprisonment or a fine of three million yen
(Art. 269).
After the decision to commence the proceedings, it is the bankruptcy adminis-
trator, and not the debtor, who has the power to manage and dispose of the assets
belonging to the bankruptcy estate (Art. 78, para. 1). The business of the debtor
may be continued by the administrator with the permission of the court (Art. 36).
The bankruptcy administrator takes control over the assets which have been in
the possession of the debtor. These assets may include assets which do not belong
to the debtor. In such cases the titleholder is entitled to retrieve them from the
bankruptcy administrator (Art. 62).
As a rule, if a creditor owes a debt to the bankruptcy debtor at the time of the
commencement of proceedings, it can be set off against the claim without resort
to the bankruptcy proceedings (Art. 67, para. 1). However, set-off is prohibited
in certain cases, such as where, after the suspension of payment, the creditor
newly owed a debt to the debtor despite knowing that the debtor had suspended
payment (Art. 71, para. 1).
Certain acts of the debtor can be invalidated by the bankruptcy administra-
tor. These acts include: (i) acts which the debtor effected knowing that it will
harm the creditor; (ii) acts effected by the debtor after the application for the
commencement of the bankruptcy proceedings, or the suspension of payment,
which harms the creditor; (iii) a gratuitous act of the debtor after the suspension
of payment or within six months before it, or a non-gratuitous act equivalent to
it (Art. 160, paras 1 and 3). Some acts in return for a reasonable payment can
also be invalidated, e.g. if such an act has the possibility to conceal or other-
wise dispose of the assets, such as the sale of real property (Art. 161, para. 1).
Furthermore, acts favouring a particular creditor after the commencement of the
bankruptcy proceedings, such as payment or provision of security, can also be
invalidated (Art. 162, para. 1).
By invalidation the bankruptcy estate returns to the status quo ante (Art. 167,
para. 1). Even if the assets in question belong to a third party as a result of the act
by the debtor, those assets may be reclaimed, for example when the third party
was aware of the existence of the ground for invalidation (Art. 170, para. 1).
Claims are repaid from the proceeds of the sale of assets (Art. 193, para. 1).
Some claims are paid outside the bankruptcy procedure. These are court costs,
the costs of the bankruptcy administration, and tax which emerged before the
decision to commence bankruptcy proceedings and were not due at the tie of the
decision, or have been due for less than one year (Art. 148, para. 1). In addition,
claims such as wages of employees for three months after the decision to com-
mence the proceedings are paid outside the procedure (Art. 149, para. 1).
Claims secured by specific preferential rights, i.e. preferential rights over a
specific thing (Arts 311 and 325 of the Civil Code), pledge, or hypothec are not
affected by the bankruptcy procedure (Art. 65). However, if the sale of a par-
ticular property with a security right over it and the subsequent extinction of the
security right is in the common interest of creditors, the bankruptcy adminis-
trator may apply to court for permission to sell the property and extinguish the
security rights (Art. 186, para. 1).
Another novelty of the new Bankruptcy Law is the system to pursue the liabil-
ity of the directors of a juridical person. There may be cases where companies and
other juridical persons have a claim vis-à-vis their directors for unlawful acts or
breaches of fiduciary duties, etc. In the Civil Rehabilitation Law and the Corporate
Reorganisation Law, there is a procedure for pursuing the liability of these people.
The new Bankruptcy Law has followed this. After the decision to commence
bankruptcy proceedings, the bankruptcy administrator may, if necessary, ask the
court to determine the liability of the director. The court may also start this pro-
cedure ex officio (Art. 178, para. 1).
For individuals, discharge is available and widely used.
3. Civil Rehabilitation Procedure
The Law on Civil Rehabilitation was enacted in 2000 amidst deepening eco-
nomic difficulty in Japan. The new Law provides the primary means of rehabili-
tation for insolvent individuals and juridical persons.
The predecessor to this Law was the Civil Composition Law of 1927, which
was of German origin. This Law had some problems, such as the requirement of
a qualified majority for the creditors’ meeting; secured creditors being allowed to
enforce their rights even after the commencement of the procedure; and above
all, the absence of the means to enforce the agreed composition plan. The short-
comings of the Law were one of the reasons for resorting to private settlement out
of court.
The new Law is designed to ‘rehabilitate debtors who are in acute economic
difficulty by establishing a rehabilitation plan with the consent of the majority
of creditors and the approval of the court’ (Art. 1). The procedure is available for
individuals as well as juridical persons, including foreign individuals and juridical
persons.
The debtor may apply to court for the commencement of the rehabilitation
proceedings when there is a likelihood that a ground for the commencement of
Insolvency Law 289
bankruptcy proceedings is to emerge. The same applies when a debt which is due
cannot be repaid without substantial difficulties to the continuation of business
(Art. 21). Previously the debtor was entitled to apply for composition if there
were grounds for bankruptcy, but this was thought to be too late for a procedure
intended to rescue the entity in question.
When there is an application, the court may appoint a supervisor of the
proceedings upon the request of an interested party or ex officio (Art. 54, para. 1).
The court, in almost all cases, appoints a supervisor, who is usually an attorney.
If the management or disposal of assets by the debtor is inappropriate, the court
may appoint an administrator to manage the business and assets (Art. 64).
What is different from the bankruptcy procedure is that the debtor is allowed
to continue the business and manage the assets (whether they are located in Japan
or overseas) or to dispose of them (Art. 38, para. 1). When necessary, disposal
or acquisition of property, borrowing, etc. can be subject to the permission of
the court (Art. 41, para. 1). This arrangement made the rehabilitation procedure
popular amongst troubled companies.
The supervisor or administrator is empowered to exercise the right to invali-
date certain acts which harm the interest of creditors, or are against the equal
treatment of creditors in a way similar to that of bankruptcy proceedings (Arts
127–127-3).
The debtor (and the supervisor) must prepare a rehabilitation plan and submit
it to the court. The court refers it to the creditors for their approval. A creditors’
meeting is not mandatory—voting in writing is also available (Art. 169, para. 2).
The plan is approved with (i) the consent of a majority of those who have the right
to vote, and (ii) consent of those who represent a majority of the value of the vote
(amount of claims) (Art. 173, para. 1). The plan is subject to the approval of the
court (Art. 174, para. 1). The supervisor supervises the implementation of the
rehabilitation plan (Art. 186, para. 2).
4. Corporate Reorganisation Procedure
The corporate reorganisation procedure was introduced into Japan from the
United States in 1952.³ This is available only to companies limited by shares. The
procedure is designed for the rehabilitation of large companies.
The Law was substantially amended in 2002 as part of the reform of insolv-
ency law. One of the major characteristics of the Law before the amendment
was that it did not recognise the system of a debtor in possession. Once the pro-
ceedings commence, the incumbent management loses the power to continue
the business and dispose of assets, and is taken over by the court-appointed
administrators. This had discouraged troubled companies from applying for this
³ Law No. 172, 1952.

procedure. After the Civil Rehabilitation Law was enacted, even large companies
opted for this procedure rather than the Corporate Reorganisation Procedure.⁴
The amended Corporate Reorganisation Law now accommodates the debtor in
possession system.
The grounds for application for the commencement of the proceedings are
the same as under the Civil Rehabilitation Law (Art. 17, para. 1). In addition to
the company itself, creditors with a claim of 10 per cent or more of the cap-
ital of the company, or shareholders with 10 per cent or more of the votes of the
company are entitled to apply (Art. 17).
The court is entitled to appoint the incumbent directors, senior executive
officers, or corporate auditors to the position of reorganisation administrator or
deputy (Art. 37).
5. International Insolvency Law
Until the insolvency law reform which began in 1999, Japanese insolvency legis-
lation was based upon a strict territorial principle. The previous Bankruptcy Law
provided that bankruptcy declared in Japan had effect only on the assets of the
bankrupt located in Japan, and also that declaration of bankruptcy abroad had
no effect on the assets located in Japan. The Corporate Reorganisation Law con-
tained the same provision.
However, with the internationalisation of the economy, the territorial prin-
ciple became untenable. In practice, efforts were made to mitigate the effect of
this principle. Regarding assets of a Japanese debtor located abroad, there have
been some cases where the administrator in the Japanese insolvency proceedings
was allowed to exercise their power abroad.
The same applies to foreign administrators exercising power in Japan. In a
leading case, a company registered in Switzerland went bankrupt based upon
Swiss law, and an administrator was appointed. The company had its trademark
registered in Japan. This was provisionally seized by the Swiss administrator. A
creditor in Japan contested this measure on the ground of territorial principle, i.e.
the Swiss proceedings should not have any effect in Japan. However, the High
Court ruled that the provision of the Bankruptcy Law merely meant that the
inherent effect of the overseas bankruptcy declaration does not extend to Japan,
but that it is not intended to deny the general effect of a bankruptcy declaration
or the appointment of an administrator abroad.⁵ Nevertheless, there was a limit
to the flexible approach by interpretation, and a legislative measure was thought
to be necessary.
⁴ Takagi, supra, p. 5.
⁵ Decision of the Tokyo High Court, 30 January 1981, Hanji 994-53.
Insolvency Law 291
UNCITRAL prepared a model law on cross-border insolvency in 1997.⁶

In 2000, Japan adopted a new law—the Law on the Recognition of Foreign
Insolvency Proceedings and Relief. This Law was more or less in line with the
UNCITRAL Model Law.⁷ Relevant insolvency legislation was amended in line
with the new law.
The Law provides for the procedure in Japan for the recognition and assistance
of insolvency proceedings commenced abroad. The recognition of foreign insolv-
ency proceedings is not automatic. A foreign administrator is required to apply to
the court for such recognition. The Tokyo District Court has an exclusive juris-
diction in these matters, although at a later stage, the court may transfer the case
to another district court (Arts 4, 5, para. 1).
There are grounds on which the recognition may be refused. These include:
• It is evident that the foreign proceeding was not intended to have effect on the
assets located in Japan.
• Provision of relief in relation to the foreign proceedings is against the public
order or good morals of Japan.
• The foreign administrator failed to report to the court the progress of the
foreign proceedings and other matters required by the court.
• It is evident that the application was made for an unreasonable purpose or
otherwise not in a serious manner (Art. 21).
Upon recognition of the foreign proceeding, the court may grant relief such as:
• stay of enforcement or interim measures in relation to the assets of the debtor;
• prohibition of disposal of assets in Japan, and repayment;
• suspension of auction as a result of foreclosure of security rights.
If necessary, the court may appoint an administrator to manage the assets
of the debtor located in Japan (Art. 32, para. 1). While under the Model Law
relief is granted automatically upon recognition, under Japanese Law this is
discretionary.
The Law also provides for parallel proceedings. Parallel proceedings took place
in some cases such as the BCCI case. According to the new Law, when the court
decides on the application for recognition of a foreign proceeding, and a proceed-
ing in Japan against the same debtor had already commenced, the application
shall be dismissed, unless all the following requirements are met:
• the foreign proceeding under application for recognition is the main foreign
proceeding;
• granting of relief is compatible with the general interest of the creditors; and
⁶ <http://www.uncitral.org/pdf/english/texts/insolven/insolvency-e.pdf>.
⁷ K. Yamamoto, ‘New Japanese Legislation on Cross-border Insolvency as Compared with the
UNCITRAL Model Law’, International Insolvency Review, vol. 11, No. 1, p. 67ff.
• by granting relief, the interest of the creditor is not unreasonably harmed in
Japan (Art. 57, para. 1).
A foreign main proceeding is defined as the proceeding commenced in the coun-
try where the debtor (a business entity) has its main place of business (Art. 2,
subpara. 2).
In the three insolvency laws, there is a provision on the payment to those
creditors in Japanese proceedings who have been paid in foreign proceedings. In
such cases, those creditors cannot be paid in the Japanese proceeding until other
creditors have been paid the same proportion of payment (hotch-potch rule).
13
Securities Law (the Financial Instruments
and Exchange Law)
1. The Development of Securities Law in Japan
The earliest law in this field was the Stock Transaction Ordinance of 1878, which
was modelled on the London Stock Exchange rules. The Tokyo and Osaka Stock
Exchanges were founded in the same year. Securities firms started their busi-
ness, dealing with government bonds and later with shares. However, the secur-
ities market failed to play a major role in Japan’s rapid modernisation process.
Business conglomerates (zaibatsu), which were the major force behind the indus-
trialisation, did not have to rely on the securities market for financing. Shares of
these conglomerates were held by holding companies and banks which were part
of these conglomerates. Therefore shares available on the market were limited in
number. This made the market speculative, because it was dominated by secur-
ities dealers, particularly through futures trading.¹
After the Second World War, the Allied Forces pursued the democratisa-
tion of the economic system. As part of the reform, zaibatsus were dissolved and
the shares held by holding companies were released to the general public. The
number of small investors sharply increased and almost reached 70 per cent at
one stage. However, since then the percentage of individual investors has fallen
substantially.
In 1947 the Securities and Exchange Law (hereinafter, the ‘SEL’) was enacted.
This was quickly replaced by another law, modelled on the US Securities Act
of 1933 and Securities Exchange Act of 1934.² The Securities and Exchange
Commission, similar to the US SEC, was founded to implement the Law. New
stock exchanges were founded and started operation in 1949. In 1952 the SEL
was amended and the Securities and Exchange Commission was abolished and
replaced by supervision by the Ministry (Minister) of Finance.
The internationalisation of the Japanese securities market was facilitated by
the liberalisation of the yen-denominated bond issues abroad in 1971. The ban
¹ For the history of the securities market, see Japan Securities Institution (ed.), Securities Market
in Japan 2006 (Tokyo, 2007), pp. 18–41.
² Law No. 25, 1946.

on investment in foreign securities was lifted. In 1980 the then Foreign Exchange
and Foreign Trade Control Law was substantially amended in order to liberalise
international transactions. This move was further accelerated in the wake of the
US–Japan Yen–Dollar Committee Report in 1984, which emphasised the import-
ance of an open and liberal capital market and the free movement of capital.
Accordingly, access to the Japanese market for foreign companies was made
easier.
In 1987 a market for commercial papers was created. Trading in bond futures
started in 1985, followed by stock index futures and securities option trading in
1988. The Law on Trading in Financial Futures was enacted in the same year
(now repealed).
The securities market in the second half of the 1980s was in a state of ‘bubble’.
Share prices, together with prices of real property, went up sharply. In 1990, the
Nikkei average was at an all-time high of 38,915 yen at the end of 1989. Even as
late as 2008, this level has not yet been regained. The Nikkei average was around
13,000 yen in July 2008 and below 8,000 yen in November.
Despite the rapid growth in the securities market in the 1980s, the regula-
tory framework failed to catch up with it. Expansion of the securities market
required improvements in the disclosure system and the tightening of regulations
on fraudulent transactions. Tighter regulation of insider trading was introduced
only in 1988, after the urging of other countries concerned about the effect of lax
regulation in Japan on the international market. The flaw in the regulatory sys-
tem was evidenced by a series of incidents involving securities companies exposed
in 1991. Large and medium-sized securities companies including the then ‘Big
Four’ were found to have compensated losses accumulated by favoured customers
through discretionary accounts. Market manipulation and insider trading were
suspected on some occasions. There was a public outcry, particularly from small
individual investors, who had also lost in the market but had never been compen-
sated. At that time, promises of compensation were explicitly prohibited by the
Securities and Exchange Law, but compensation without a promise was not. The
Law was amended in 1991 in order to make compensation unlawful per se.
In the wake of these incidents, a new supervisory body, the Securities and
Exchange Surveillance Commission, which was entrusted with ensuring fair
trading in the securities market, was established within the Ministry of Finance in
1992. It was empowered to investigate violations of the Securities and Exchange
Law and other laws and to apply to the Public Prosecutor’s Office to prosecute
offenders. The Commission eventually became part of the Financial Services
Agency.
One of the characteristics of the Japanese financial system was the strict
segregation of banking and securities business. In the pre-war period banks were
allowed to engage in any kind of businesses. Under this universal banking sys-
tem, banks acted as major underwriters of securities. After the Second World
War Japan followed the US Glass-Steagall Act and strictly segregated securities
Securities Law (the Financial Instruments and Exchange Law) 295
business from banking business. This was intended primarily to ensure the sound
management of banks by distancing them from the securities market, thereby
protecting the banks from fluctuations in the securities market, and to prevent
them from creating financial conglomerates.³
The line between the two types of businesses had already become somewhat
blurred in the 1980s. The system of segregation became even less strict in the
1990s. In 1993 a set of laws for financial reform came into effect. Securities com-
panies were allowed to set up banking and trust bank subsidiaries. For their part,
banks set up securities subsidiaries, but the scope of business was limited and
the size of the subsidiaries was fairly small. The previously strict segregation of
the banking and securities businesses was relaxed, and entry into each other’s
business came to be allowed. However, this reform proved to be insufficient to
reinvigorate the system.
The financial sector at that time was administered by the Ministry of Finance
in a highly detailed but often informal and discretionary way. An example is the
restriction on the opening of branches by banks. Although there was no expli-
cit statutory basis, banks were not allowed to open branches without the tacit
approval of the Ministry. This was intended to protect smaller financial institu-
tions and regional banks. Another example is the marketing of new financial
products, where financial institutions had to ‘consult’ the Ministry in advance.
It was feared that, because of such over-regulation, the Japanese financial
market would lose competition to foreign markets and investors would leave
Japan. This led the government to embark on a comprehensive deregulation pro-
gramme of the financial sector, which was called the ‘financial big bang’, fol-
lowing the ‘Big Bang’ in the UK. The reform was based upon three principles:
free, fair, and global markets. ‘Free’ means the prevalence of the market principle,
including the replacement of excessive regulations. ‘Fair’ means a transparent
and reliable market. This involves the improvement of the disclosure system for
the promotion of self-responsibility. Methods of regulating banks and securities
companies shifted from detailed advance regulation by way of administrative
guidance to post facto supervision.
As part of the ongoing reform, in 1998, laws including the Securities and
Exchange Law were amended. This involved the shift from the licensing system
to a registration system of securities companies, further lowering of the barriers
between banking and securities businesses, and liberalisation of the brokerage fee.
In 1997 the prohibition on holding companies in the Anti-Monopoly Law was
removed. As a result, financial holding company groups were allowed to be set
up. While in the 1990s, there were three long-term credit banks and nineteen city
banks which operated nationwide, now, after a decade, there are four financial
³ One of the differences between the Glass-Steagall Act and the Japanese system is that in Japan
banks are allowed to hold shares in business companies for investment purposes. Y. Suzuki (ed.),
The Japanese Financial System (Oxford, 1987), pp. 39–40.
holding company groups. These groups invariably have banks and securities
companies within the group. Thus segregation of banking and securities business
was further relaxed.
Another development in the reform is the enactment of the Law on the Bank
of Japan.⁴ The old law, modelled on the German Reichsbanksgesetz of 1933, has
long been considered outdated. In the new law, the independence of the Bank of
Japan from the government has been strengthened. For example, the power of
the government to issue orders to the Bank was abolished, and it was made clear
that a difference of views between the government and the bank directors is not a
good ground for the latter’s dismissal. Instead of the informal meeting of the gov-
ernor and senior directors, which hitherto has been the de facto decision-making
body, the new Law reconfirmed that the policy board was the supreme body of
the Bank, and changed its composition.
The goal of the ‘Big Bang’ in Japan was two-fold: the reform of the system
and the sorting out of the problems involving non-performing loans which had
been accumulating since the burst of the bubble in the early 1990s. The problem
with the latter was already evident in the early 1990s, but the banks failed to take
decisive measures to cope with it, while the government remained complacent.
In March 1998 the government finally decided to inject capital into the trou-
bled banks. This, however, proved to be ‘too little, too late’. Some banks found
it difficult to meet the BIS capital adequacy ratio, and had to reduce the scope
of their business. Banks became reluctant to extend loans and even accelerated
the recovery of debts, which led to a credit crunch, resulting in the collapse of
business companies. A set of laws to cope with the crisis was adopted in 1998.
As part of the emergency package, a new agency, the Financial Reconstruction
Commission was set up and was in operation until 2001. This function was taken
over by the Financial Services Agency (hereinafter the ‘FSA’).
One of these laws, the Law on Emergency Measures for the Restoration of
the Functioning of the Financial System, provides inter alia for measures to be
applied to failed banks.⁵ Immediately after the enactment of this Law, one of the
long-term credit banks was forced to apply for special public administration, i.e.
virtual nationalisation with a view to selling the business in the future.⁶ Another
long-term credit bank followed soon afterwards.⁷
The crisis was overcome only because the government decided to inject public
funds into the banks and restore the credibility of the financial system, but the
effect of the crisis continued well into the 2000s.⁸
⁴ M. Hall, ‘Financial Reform in Japan: Redefining the Role of the Ministry of Finance’, Journal
of International Banking Law, 1998, Issue 5, pp. 171–176.
⁵ Law No. 132, 1998. These include administration by a financial administrator, the establish-
ment of a bridge bank, and special public administration.
⁶ Nikkei, 23 October 1998. ⁷ Nikkei, 12 December 1998.
⁸ D. Puchniak, ‘Perverse Main Bank Rescue in the Lost Decade: Proof that Unique Institutional
Incentives Drive Japanese Corporate Governance’, Pacific Rim Law and Policy Journal, January
2007, Vol. 16, No. 1, p. 55.
2. The Enactment of the FIEL
In the process of the ‘Big Bang’, a forum of experts was set up by the Ministry
of Finance and other ministries in order to discuss the prospective reform of the
financial system. The interim report of this group published in June 1998 pointed
out that a new law or a set of rules encompassing a wide range of financial instru-
ments and services across the board was needed, with a UK Financial Services
Act of 1986 type of law in view. The need for common rules applicable to collect-
ive investment schemes, irrespective of the investment vehicles or the objects of
investment, was stressed.⁹
In fact, the Securities and Exchange Law has never been a comprehensive
law covering the whole range of financial products. The US Securities Act has
a broadly defined concept of securities which includes investment contracts, i.e.
contracts, transactions, or schemes whereby a person invests his money in a com-
mon enterprise. In contrast, The SEL has an exhaustive list of specific securities
it covers (Art. 2). Although the list had been expanded over the years, various
financial products fell outside the scope of the SEL and were left entirely unregu-
lated or regulated by other laws implemented by different agencies. In the 1990s,
a wide range of financial instruments began to emerge, but the regulations failed
to catch up with such developments. Some financial instruments were left with-
out any regulation at all. An example is the foreign exchange margin transaction
which was unregulated and resulted in investors with insufficient knowledge and
expertise being lured into investment and losing. Only with the amendment to
the Financial Futures Trading Law in 2005, were such transactions placed under
the supervision of the Financial Services Agency and the problems more or less
subsided. As for collective investment schemes, only a part of them was covered
by the SEL.
In the autumn of 1997, the Japanese financial system fell into a major crisis
which led to the collapse of a city bank and one of the big four securities compan-
ies followed by others. The Ministry of Finance, which was promoting the idea
of a new comprehensive law covering financial instruments, was criticised for the
way it had been supervising financial institutions. Furthermore, a major scandal
involving Ministry officials was exposed, and the Ministry was seriously discred-
ited. With the decline of the Ministry, the momentum for the enactment of a
comprehensive law was lost. In the wake of the financial crisis, discussions on the
comprehensive law almost ceased. While the financial system in Japan was dwin-
dling, in the UK the 1986 Financial Services Act was replaced by the Financial
Services and Markets Act (FSMA) 2000, which covers securities, banking, and
insurance.
⁹ Forum on the New Developments of Finance (Atarashii Kinyū no Nagare ni kansuru

Kondankai), Identification of Issues (Ronten Seiri), 17 June 1998.
The proposal in the late 1990s for a comprehensive law resulted in a law of
a much reduced scale in comparison with the UK Financial Services Act of
1986—the Financial Instruments Sales Law in 2000. This Law is primarily of a
civil law nature as contrasted to administrative/regulatory law. It limited itself to
imposing the duty of the seller of financial instruments to provide information
regarding the risks involved in the financial product to investors. The informa-
tion required of disclosure was merely the risk of losing the amount of investment
(capital). Sellers are liable for damages for the failure to provide information and
a provision on the presumption of loss was introduced. The coverage of this Law
was insufficient in that, for example, the area of commodity futures trading was
exempted. Nevertheless, there is a body of case law that developed under this law
and which contributed to the protection of investors.¹⁰
When the financial crisis more or less settled, the discussion regarding a new
comprehensive law was resuscitated. The 2003 report of the Financial System
Council (hereinafter, the ‘FSC’), which is an advisory body to the FSA, proposed
the replacement of the SEL by a new ‘Investment Services Law’.¹¹ The intention
was to provide a comprehensive and across-the-board framework for the protec-
tion of investors regarding a wide range of financial instruments, filling the gaps
of the existing laws. Fragmented rules applicable to segmented businesses were
to be unified and similar rules were to be made applicable to financial instru-
ments of an identical nature with a similar level of risk, which was not necessarily
the case at that time. The goal of the law was not limited to investor protection;
the creation of a fair, efficient, transparent, and vibrant financial market was the
ultimate goal.
The government policy of reinvigorating the securities market, which was slow
to recover from the financial crisis, was behind this move. In Japan, a large portion
of household savings are not invested in the financial market; instead, they are
deposited as postal savings. The overall intention of the government was to induce
the general public to invest in the financial market, but to achieve this goal a com-
prehensive and developed legal framework such as the UK FSMA was needed.
The revamping of the SEL was also necessary for other reasons. Firstly, the
need for strengthening the corporate audit system had come on the agenda as
a result of incidents of window dressing by banks and business companies, and
the failure of accountants to prevent them in the early 2000s. In line with the
US Sarbanes-Oxley Act, it was felt necessary to introduce the system of listed
companies producing a document confirming the accuracy of securities report
and other disclosure documents and the internal control report.
Secondly, in 2005, the celebrated takeover of the Nippon Broadcasting System
by a company called Live Door took place. Flaws in the SEL regarding the TOB
¹⁰ T. Ueyanagi and Y. Ishidoya, Shin Kinyū-shōhin-torihiki-hō Handbook (Handbook on the New

FIEL) (Tokyo, 2006), pp. 48–54.
¹¹ <http://www.fsa.go.jp/en/refer/councils/singie_kinyu/tosin/20051222.pdf> (in English).
system became apparent through this case and subsequent takeover cases (see
Chapter 11).
Thirdly, as a result of the series of incidents involving insider trading and false
reporting, the fairness and transparency of the financial market came to be ques-
tioned in 2005/2006. In the light of the internationalisation of the financial
and capital markets, in order to increase the credibility of the Japanese market,
improvement of the regulatory system was thought to be necessary.
Against this background, the bill on the amendments to the SEL and other laws
was submitted to Parliament in March 2006. It became law in June of the same
year. As for the title of the Law, the FSA’s ‘Programme for the Future Financial
System’ of 2004 and the FSC First Sub-Committee’s report of 2005 referred to
the ‘Investment Services Act’ with the hope of including banking and insurance
businesses. Clearly they had the UK FSMA in view. Presumably since the new
law in the end did not cover banking and insurance transactions, the legisla-
ture stopped short of using the title of ‘Financial Services Law’. On the other
hand, replacing the term ‘securities’ with ‘financial instruments’ was understood
to symbolise the broadening of the coverage of financial products covered by the
new Law.
The actual bill took the form of a law amending the SEL and other laws cover-
ing some financial instruments. Concerning the SEL per se, the amendments
comprised three steps and have been taking effect ‘in the order of urgency’. Firstly,
penalties provided by the SEL were strengthened. The investigative power of the
Securities and Exchange Surveillance Commission was marginally strengthened.
This part of the amendment took effect in July 2006. Secondly, the insufficiency
in the regulations on takeover bids (TOB), which came to light in the course of a
series of rather distorted takeover attempts in 2005/2006, was addressed.
Concerning the disclosure system, the reporting requirements for large share-
holdings went through a reform. The existing system was thought to be insuf-
ficient, since it allowed an excessively lax regime for investment funds and the
like. The disclosure requirement for large shareholdings was strengthened in this
respect. This part of the Law came into effect in December 2006. Finally, the
SEL was replaced by the Financial Instruments and Exchange Law (hereinafter,
‘FIEL’). This took effect in September 2007.
The arrangement of the chapters of the FIEL is identical to that of the SEL.
Many provisions of the SEL were inherited by the FIEL without significant
changes. However, substantial changes regarding the scope of the law and basic
concepts have taken place in the FIEL. The changes can be summarised as
follows:
• Broadening of the range of financial instruments and services covered by the law:
– the concept of securities expanded; collective investment schemes are now
covered by the FIEL;
– expansion of the coverage of derivatives.
• Replacement of the concept of ‘securities businesses’ by the concept of ‘financial
instruments businesses’:
– business hitherto covered by laws other than the SEL came to be covered by
the FIEL.
• Introduction and determination of the organisational structure of a self-
regulatory body of the exchanges.
• Flexibilisation of regulations, depending on whether the customer is a professional
investor or not.
• Enhancement of disclosure:
– introduction of quarterly reporting for listed companies;
– introduction of the internal control report.
The FIEL was further amended in 2008. A market for professional investors where
the disclosure requirements do not apply was set up. An investment advisory ser-
vice is now allowed to the banks. The level of surcharges (kachōkin) has been
increased and the scope of application has been expanded.¹²
3. The Goal of the FIEL
The declared goal of the SEL was to ensure the fairness of the issue, sale, and
other transactions involving securities and the smooth circulation of securities
and thus contribute to the adequate management of the national economy and
the protection of investors (SEL, Art. 1). The interpretation of this provision var-
ied. There was a view that the protection of investors was the primary goal of the
SEL, but there was another school of thought which contended that the goal of
the law should be ensuring the functioning of the securities market for the fair
price formulation.¹³
In contrast, the provision regarding the goal of the FIEL reads as follows:
This Law aims at ensuring the fairness of the issue of securities and transactions involving
financial instruments etc., making the circulation of securities smooth, and also at the
fair price formulation of financial instruments etc. by sufficient functioning of the capital
market through the development of the disclosure system of corporate information etc.,
setting out requirements to those who are involved in financial instruments business,
and ensuring of the adequate management of the financial instrument exchanges, and
thus contributing to the sound development of national economy and the protection of
investors. (FIEL Art. 1)
The novelty here is that the ‘fair price formulation of financial instruments
via the sufficient functioning of the capital market’ was added. Although the
¹² <http://www.fsa.go.jp/en/refer/measures/20080606.html>. According to the FSA translation,

‘administrative monetary penalties’.
¹³ T. Uemura, in Kigyō-Kaikei vol. 53, No. 4, p.135.
SEL was regarded as a capital market law as well as the law regulating securities
transactions and business, this aspect was not reflected in the wording of the
SEL. In contrast, the corresponding provision of the FIEL stresses the nature of
the law not only as a law regulating the issuing and trading of securities, but also
as a law which provides for the infrastructure of an efficient and fair capital mar-
ket. The concept of the capital market itself has been widened, since this is not
only the securities market, but also the market in a broader sense where transac-
tions involving a wider range of financial instruments take place.¹⁴
4. The Scope of the FIEL
As mentioned above, the SEL was not the only law which regulated financial
instruments. The legislation in the area has been fragmented, divided along the
line of financial products and agencies in charge of implementing relevant laws.
SEL could be characterised as a law which regulated securities, the securities
industry and the securities market. Banking and insurance businesses were, and
still are, regulated by the Banking Law and Insurance Business Law respect-
ively. Commodity funds came under the scope of the Law on the Regulation
of Business involving Investment in Commodities. Commodity futures are
covered by the Law on Commodities Exchange. Agencies responsible for these
businesses ranged from the Ministry of Finance (later FSA) to the METI, the
Ministry of Land and Transportation, and the Ministry of Agriculture and
Fishery.
While the SEL had a fairly well developed system of rules, other laws simply
regulated the given type of business and were insufficient in the protection of
investors. It was thought that there should be a law which encompasses all these
areas of business, regulating financial products and services of a similar nature in
the same manner, and with a single agency to implement it.
The absence of such a comprehensive law was felt in recent years when investors
suffered losses by investing in financial instruments which did not fall within the
scope of the SEL or any other law, or were insufficiently regulated by law. These
included variable (equities) insurance, commodity futures, overseas commodity
futures, commodity futures options, and foreign exchange margin transactions.
Remedies were not readily available in many of these cases. Foreign exchange
margin transactions claimed many victims until 2004, when the then Financial
Futures Trade Law was amended in order to cover such transactions.¹⁵
¹⁴ See also S. Osaki, Kaisetsu Kinyū-shōhin-torihiki-hō (Commentary to the FIEL) (Tokyo, 2006),
pp. 16–17; E. Kuronuma, Kinyū-shōhin-torihiki-hō Ny-mon (Introduction to the FIEL) (Tokyo,
2006), pp. 34–35.
¹⁵ Ueyanagi and Ishidoya, supra, pp. 48–54.
The FSA had expressed its intention to ‘strive for establishing overall uniform
rules for transactions regarding financial products and services’ in 2004. The
underlying idea was that financial instruments of a similar nature and risk should
be subject to the same level of regulation by the new Law regardless of the agen-
cies in charge.
The FSC Sub-Committee report did not precisely define financial instruments
(it used the term investment products), but listed three characteristics of them:
• financial instruments involve monetary investment with the possible return of
monetary value;
• the investment is related to assets or indexes;
• it involves the taking of a risk with a view to economic benefit.
It was proposed that the products, including collective investment schemes,
should be listed in a broad and comprehensive manner insofar as it is necessary
for the protection of investors. On the other hand, it was added that exemptions
and designations of financial instruments should be available in order to respond
to changing circumstances.
However, whether or not the new Law should be as comprehensive as the UK
FSMA which encompasses banking and insurance businesses was not decided.
The Sub-Committee report was rather cautious on the scope of the new law. In
order to facilitate the enactment of the Law, it was proposed that the new Law
cover ‘financial instruments which involve risk’ that have been agreed so far. A
view was expressed at the last session of the Sub-Committee that the proposed
Law should include bank deposits and insurance as the UK FSMA does. It was
pointed out that although it was inevitable that the new Law would be enacted
with reduced scope at this stage, the future direction of the legislation should be
made clear to the general public.¹⁶
Views varied within the government on the coverage of the new Law. For
example, while the FSA proposed to accommodate commodity derivatives
trade including futures trade regardless of whether it takes place within or out-
side Japan, the Ministry of Economy, Trade and Industry and the Ministry of
Agriculture and Fishery were strongly opposed to this. As a result, the Law on
Commodities Exchanges, which is not specifically designed to cover commodity
futures, remains to regulate them.¹⁷ Thus, for various reasons, some separate laws
concerning financial instruments remain together with the FIEL. These include
the following:
• Law on Banks;
• Law on Insurance;
• Law on Commodities Exchanges;
¹⁶ Summary of the First Sub-Committee meeting of 22 December 2005, <http://www.fsa.

go.jp/singi/singi_kinyu/gijiroku/kinyu/dai1/f-20051222_giji.html>.
¹⁷ Ueyanagi and Ishidoya, supra, pp. 262–263.
• Law on Specific Joint Businesses on Real Estate;

• Law on the Futures Trade in Overseas Commodity Market.
While the FIEL failed to cover some financial instruments, by the amendment
to the relevant laws, the same rules as the FIEL contains are applicable to the
following:
• foreign currency denominated deposits (Banking Law);
• derivatives deposits (ibid.);
• foreign currency denominated insurance (Insurance Business Law);
• variable insurance and annuity (ibid.);
• commodity futures (Commodity and Exchange Law);
• real estate syndication business (Law on Specific Joint Businesses on Real
Estate).
Banking Law and Insurance Business Law were amended, and as a result, struc-
tured deposits and variable insurances came under the same level of regulation as
the FIEL.
Concerning commodity futures in the domestic market, the Law on
Commodities Exchange was amended in order to align it with the FIEL.
However, although there have been a large number of troubles involving inves-
tors, the much needed prohibition of uninvited solicitation was not made applic-
able. For overseas commodity futures, the relevant law, which is not sufficient,
has not been amended.¹⁸
The Financial Instruments Sales Law of 2000 also remains in force. The Sub-
Committee report proposed to incorporate this Law into the FIEL, but this was
rejected in the end, primarily because the coverage of this Law differed from
that of the FIEL. The Law, however, was amended on this occasion. The duty to
provide information to the customer was expanded in order to incorporate infor-
mation not only on the possible deficit of the capital, but also the fact that loss
may exceed the capital. The substantial part of the transaction scheme now needs
to be explained too.
5. The Concepts of Securities and Financial Instruments
The key concept in the SEL was ‘securities’. Once a financial product fell within
the scope of securities listed in the SEL, various rules, including the prohib-
ition of financial institutions to handle them, became applicable. The FSC Sub-
Committee report used the term ‘investment products’ to denote products which
are to be regulated by the prospective ‘Investment Services Law’. However, the
FIEL retained the concept of securities, although its coverage was significantly
¹⁸ Ibid., pp. 50–51.

broadened. Despite the name of the Law, still, ‘securities’, and not financial
instruments, is the key concept in the FIEL. It would be misleading to say that
the FIEL regulates financial instruments in the same way as the SEL covered
securities. The FIEL covers ‘securities’ and ‘derivatives trade’. ‘Financial instru-
ments’ are by no means a higher concept than those. It neither demarcates the
scope of the FIEL nor the scope of business of the Financial Instruments Firms
(FIFs).
The FIEL sets out a list of securities as is the case with the SEL. Although various
rights have since come to be covered by the FIEL, the structure of the provision
defining securities has not changed. The list of securities which has been expanded
by the successive amendments to the SEL has been further expanded by the FIEL.
At the end of paragraph 1 of Article 2—which lists more than 20 securities includ-
ing treasury bonds, corporate bonds, share certificates, and certificate of beneficiary
rights for investment trusts—there is a general clause which enables other financial
products to be designated as securities by a cabinet order, in consideration of their
circulation and the need to protect the public interest or investors (Art. 2, para.
1). Paragraph 1, which covers securities with high liquidity, has been expanded as
compared to the SEL in that mortgage securities as well as securities embodying
options in derivatives transactions were added. Accordingly, the Law on Mortgage
Securities Business was abolished. Paragraph 2 of Article 2 provides for (i) securities
without a certificate (paperless securities) and (ii) rights which are not represented in
securities or certificates, but are listed in this paragraph. The second category cov-
ers securities with low liquidity, including beneficiary rights in investment trusts
(‘investment trusts (tōshi-shintaku’) in Japan covers both contractual and corporate
type trusts) and rights emanating from collective investment schemes.
Category (ii) rights are denoted as ‘deemed securities’. The scope of deemed
securities has been substantially broadened. There are two major additions—
(a) beneficiary rights of trust and (b) interests in collective investment schemes.
The consequence of a particular financial instrument qualifying as securities is
that firstly, the financial instrument can in principle only be handled by Financial
Instruments Firms (FIFs: previously securities dealers etc.).
Another outcome of a product being qualified as securities is that requirements
for disclosure as well as market regulations become applicable. However, deemed
securities, including collective investment schemes which do not invest in secur-
ities, are in general not subject to disclosure requirements under the FIEL.
Thirdly, the prohibition of unjust trading becomes applicable. Finally, securities
will be able to be traded in financial instrument exchanges.¹⁹
Together with securities, the other pillar of the FIEL is derivatives transac-
tions. The Sub-Committee report had pointed out that derivatives transactions
should be covered by the FIEL, regardless of the underlying assets.
¹⁹ Matsuo (ed.), Ichimon Ittō: Kinyū- shōhin-torihiki-hō (Q&A; FIEL) (Tokyo, 2006), pp. 84–85.
Embryonic forms of the derivatives trade existed in Japan for many years, but
it has widely developed since 1985 when government bond futures trade was
introduced at the Tokyo Stock Exchange. In 1988, stock index (TOPIX) futures
trade started. Since then, various kinds of futures and options trading have devel-
oped in Japan.²⁰ The SEL regulated derivatives transactions involving securities,
whereas a separate law—the Law on Financial Futures Trade—regulated finan-
cial futures transactions. This latter Law was integrated into the FIEL and the
original Law was abolished.
According to the FIEL, derivatives transactions can be categorised into three
types:
• derivatives transactions in the financial instruments market;
• over-the-counter transactions;
• transactions in the foreign financial instruments market.
In order to specify various types of derivatives transactions, the FIEL used
the term ‘fi nancial instruments’. Th is is where the concept of fi nancial instru-
ments is given a functional meaning. The FIEL has a provision which defi nes
fi nancial instruments. Th is provision actually sets out the underlying assets of
derivatives transactions under the heading of ‘fi nancial instruments’ (Art. 2,
para. 24). These are:
• securities;
• claims and other rights based upon a contract of deposit or securities or certifi-
cates listed in a cabinet order and representing such rights;
• currency;
• assets, a similar kind of which exist in multiples and are subject to substantial
price fluctuation and designated to be in need of investor protection;
• standard products set by financial instruments exchanges in relation to the
above (except for currencies) by standardising interest rate, redemption date,
and other terms in order to facilitate transactions in derivatives.
In addition to the concept of financial instruments, the FIEL also accommo-
dates a provision which defines financial indexes (ibid., para. 25). These are:
• price or interest rate of financial instruments;
• indexes regarding the result of the observation by the meteorological office;
• indexes whose fluctuation is impossible or extremely difficult to influence or
control and which significantly affects the business activities of an entrepre-
neur, or statistical indexes regarding the state of society or the economy where
the protection of investors is required in derivatives transaction involving them
and designated as such by a cabinet order.
²⁰ Securities Market in Japan 2006, supra, pp. 124–144.

Specific types of derivatives transaction are listed. These include:
• futures transaction, forward transaction, option transaction;
• index futures transaction, index forward transaction, index option transaction,
swap transaction;
• credit derivatives transaction.
Derivatives transactions which were not regulated before, such as currency and
interest rate swaps, credit derivatives, and climate derivatives are included. In
addition, the FIEL provides for the possibility of adding new types of derivatives
transactions by way of a cabinet order.
On the other hand, commodities and commodities indices which fall within
the framework of the Law on the Commodities Exchanges are excluded from the
coverage of the FIEL, although this Law was amended in order to have the same
level of regulation as the FIEL applicable.
The effect of derivatives being covered by the FIEL is that only registered
FIFs can handle such transactions, and as a result, rules of the FIEL regarding
conducts of FIFs become applicable. On the other hand, unlike securities, the
disclosure requirements are not applicable.
6. Collective Investment Schemes
Collective investment schemes are often called ‘funds’ in Japanese. They were
not fully regulated under the SEL regime, since the SEL only covered investment
trusts and schemes which invest in securities. Schemes investing in real estate,
commodities, and commodity futures were regulated by separate laws.²¹ Funds
investing in other objects were not regulated at all, unless a limited partnership for
investment (LPS) was used as a vehicle. Many funds which took the form of asso-
ciations under the Civil Code, or anonymous associations under the Commercial
Code, were not subject to supervision by any administrative agency.²²
The necessity of improved regulation of collective investment schemes was
already felt in the 1990s. Whereas in the UK, the law covered ‘units of collective
investment schemes’, the then existing system of regulations regarding financial
instruments was highly segmented in Japan. These laws included the Civil Code,
the Commercial Code, the Law on Trust Business, the Law on Securitisation
of Assets through Special Purpose Companies and the Law on Unit Trusts and
Investment Corporations. However, as various new and complex schemes emerged,
these segmented regulations were unable to cover them adequately. Furthermore,
these schemes encompass diverse stages such as structuring the scheme, asset
²¹ Ueyanagi and Ishidoya, supra, p. 130.

²² FSA, Summary of Regulations on Funds, <http://www.fsa.go.jp/singi/singi_kinyu/siryou/
kinyu/dai1/f-20050707_d1sir/03.pdf>.
management, advisory business, custodianship, and sale. Again, they were regu-
lated by different laws, if any.
Concerning the types of funds, the report of the study group of the METI
listed the following:
(i) securities/real estate investment funds structured on the basis of the Law on
Unit Trusts and Investment Corporations;
(ii) investment funds organised as a partnership;
(iii) commodity funds investing in commodities and commodity futures
regulated by the Law Regulating the Commodity Investment Business;
(iv) real estate joint business funds structured on the basis of the Law on Specific
Joint Business on Real Estate;
(v) trust type funds structured on the basis of Law on Trust Business;
(vi) other funds investing in businesses other than the above and which are not
subject to any law.
Category (ii) includes ‘activist’ funds, mezzanine funds, and private equity funds.
In recent years, funds investing in diverse businesses such as investment in IT
contents, leisure, hotels, and food have emerged.²³
The common thread was that these were the schemes in which the sponsor
pools the invested fund and the fund manager manages and administers it.
Common denominators are the ‘passiveness’ and ‘collectiveness’ of the scheme.
Passiveness means that participants are not involved in the day-to-day manage-
ment of the assets, and that they leave it to someone else. Collectiveness means
that the investment of the participants and the profits or income to be distributed
to the participants are pooled. This was in line with the UK FSMA and the US
Howey doctrine.²⁴
In the final report of the FSC Sub-Committee in 2005, it was proposed that
effective and comprehensive, across-the-board rules for collective investment
schemes should be introduced insofar as non-professional investors are involved.
On the other hand, the financial industry and METI were against the strength-
ening of regulation on collective investment schemes. It was argued that strin-
gent regulation would reduce the international competitiveness of the Japanese
market.
A collective investment scheme is defined in the FIEL as follows:
Rights based upon a contract of association (the Civil Code), contract of silent partner-
ship (the Commercial Code), contract of limited liability partnership for investment
(Law of 1998), and contract of limited liability partnership (LLP Law of 2005), rights
as a member of an association in which the rightholder (investor) is entitled to receive
²³ METI, Keizai-seichō ni muketa Fando no Yakuwari to Hatten ni kansuru Hōkokusho (Report of

the Research Group on the Role and Development of Funds Towards the Economic Growth), December
2005.
²⁴ SEC v. W. J. Howey Co. 328 U.S. 293, 66 S.Ct.1100.
dividends or distribution of assets from the business in which the investor has contrib-
uted by way of investment or monetary payment . (Art. 2, para. 2, subpara. 5)
Exemptions include the following:
(i) schemes designated by the cabinet order in which all investors take part in
the business;
(ii) contracts in which the dividend or the amount of distribution does not
exceed the investment.
Furthermore, insurance contracts, certain types of contracts of mutual aid,
and rights based upon real estate specific joint venture contracts are excluded.
Commodity funds are exempted as well.
Exemption (i) reflects the view that the scheme should be intended to profit
from the efforts of another person. Partnerships of lawyers and accountants are
examples of this exception. If the investor does not intend to make a profit, such
as in cases of housing cooperatives, it is not a collective investment scheme.
In this context, a US Supreme Court judgment of 1946 was referred to in the
drafting stage. According to this judgment, an ‘investment contract’ in the US
Securities Act is a ‘contract, transaction, or scheme whereby a person invests his
money in a common enterprise and is led to expect profits solely from the efforts
of the promoter or a third party’.²⁵
Exemption (ii) includes NPO banks, i.e. funds investing in non-profit busi-
ness for public interest.
The consequence of collective investment schemes as a whole included in the
list of deemed securities is that (i) as a rule, only FIFs can be involved in this
business, and (ii) various conduct and management rules become applicable.
Thus, rules regarding the soliciting and sale of the share of collective investment
schemes, as well as rules regarding the management of investments are applicable.
On the other hand, collective investment schemes are exempted from the appli-
cation of the disclosure rules unless the scheme invests in securities. Collecting
investment in business based upon a silent association contract from the general
public does not require a securities registration statement or the handing out of a
prospectus. As the solicitation of investment to this kind of a scheme is a category
II financial instruments business (FI business), the advertisement regulation and
the duty to provide documents before the conclusion of the contract apply.
However, this is questionable, since regardless of whether or not the object
of investment is securities, information about the funds is relevant when mak-
ing investment decisions for investors.²⁶ Even in schemes investing in securities,
due to the narrow definition of ‘offers’, disclosure requirements will seldom be
applied. Recently there was an incident whereby a fund investing in a business
collapsed (Heisei Denden case). The fund itself was closely involved in the invested
²⁵ Ibid. ²⁶ Ueyanagi and Ishidoya, supra, pp. 143–144.

business. The total amount of loss to more than 19 thousand investors is reported
to be around 49 billion yen.²⁷
7. Financial Instruments Business and Firms
The FIEL has introduced a new concept of ‘financial instruments businesses’

and ‘financial instrument firms’ (hereinafter, ‘FIFs’). FIFs are defined as entities
which are involved, as a business, in one of the financial instruments businesses
listed in the FIEL. The list contains businesses involved in securities and deriva-
tives transactions (but the term ‘financial instruments’ is not used). Financial
instruments business covers securities business under the previous SEL and the
Law on Foreign Securities Dealers (now abolished), but goes much further and
is in addition to the core securities business. It can be summarised as ‘sale and
solicitation’, assets management and investment advice, and administration of
monies and securities.²⁸
The scope of the financial instruments business is broader than the securities
business under the SEL. This is due, firstly, to the expansion of the concept of
securities such as mortgage securities and collective investment schemes, and that
businesses involving them are now financial instruments businesses. Secondly,
the expansion of the coverage of derivatives resulted in businesses involving vari-
ous types of derivatives included in the financial instruments business. Thirdly,
investment advisory business and investment management business have come
to be included in the FI businesses.²⁹ Securities companies, dealers in finan-
cial futures, dealers in commodities investment, securities investment advisers,
commissioners of unit trusts, and mortgage securities dealers are now FIFs.
Under the SEL, securities business was subject to a licence. In 1998, as part of
the financial deregulation, with the intention of liberalising entry into the mar-
ket, this was replaced by a registration system. However, due to the risks involved
and the expertise needed in the business, certain categories of business were sub-
ject to the licence of the Prime Minister. These included the over-the-counter
trade of derivatives and the underwriting of securities (direct from the issuer) as
well as the management of the private trading system (PTS)/multiple trading
facilities (MTF). Under the FIEL, in contrast, only businesses involving PTS/
MTF are subject to government approval. To this extent, the FIEL has deregu-
lated these businesses.³⁰ Thus, the scope of FI business has been expanded with
the broadening of the coverage of the law, and at the same time, the registration
system became the rule.
²⁷ M. Yoshida et al., Guidance Kinyū-shōhin-torihiki-hō (Guidance to the FIEL) (Tokyo, 2006),

pp. 87–88.
²⁸ Ueyanagi and Ishidoya, supra, p. 57. ²⁹ Matsuo, supra, pp. 108–109.
³⁰ Osaki, supra, p. 40.
The expansion of the scope of the financial instruments business has created a
‘one stop shopping system’. Under the previous system, for example, if securities
companies were to provide ‘wrap accounts’, various licences and registration were
required, but under the FIEL, a single registration would suffice.³¹
There are four types of financial instruments businesses: (i) category I FI
businesses, (ii) category II FI businesses, (iii) investment advisory and agency
businesses, and (iv) investment management businesses. There are requirements
common to all types of businesses. Eligible entities should not have had their
registration revoked in the past five years, should not have other businesses which
are against the public interest, and should have sufficient personnel to carry out
the business properly. Other requirements for the entry into the business differ
for those categories.
Category I financial instruments business involves trading in high liquid-
ity securities (i.e. securities other than deemed securities), but extends to the
following:
• intermediary, brokerage, agency of the trading in high liquidity securities and
derivatives transactions;
• intermediary, brokerage, agency of the commissioning of the above;
• brokerage of clearing of securities;
• public offer and private placement of securities and their handling;
• over-the-counter trade of derivatives, or its brokerage, intermediation, and
agency;
• underwriting of securities;
• PTS business;
• custody of securities.
FIFs involved in category I financial instruments business must be companies
limited by shares and are subject to requirements including:
• the capital adequacy rule;
• minimum capital requirement;
• minimum net assets requirements;
• requirements to major shareholders.
The minimum capital for the category I financial instruments business is set by
cabinet order at 50 million yen. However, for underwriting business in category I,
the requirement is 3 billion yen or 500 million yen, depending on the size of the
offer.
Category II financial instruments business covers sales and solicitation of
securities with lower liquidity (deemed securities) and market derivatives as well
as the following:
³¹ Matsuo, supra, p. 170.

• trading in deemed securities;

• derivatives transactions not related to securities in the market or in a foreign
market; their brokerage, agency, and intermediation.
The basic requirement for this category of business is the minimum capital
requirement at 10 million yen. Even individuals are allowed to conduct category
II FI business with the placement of security for operation.
The other two categories of financial instruments business are investment
advisory/agency business and investment management business (including
discretionary investment business). Investment advisory and agency business
covers the provision of advice based upon an advisory contract, acting as an inter-
mediary or agent for the conclusion of investment advisory contracts as well as
discretionary investment contracts. The management of a collective investment
scheme is investment management business and is regulated as such. Investment
management business is subject to a net assets requirement and a minimum
capital requirement.
As mentioned above, Japan has followed the US Glass-Steagall Act which
strictly segregated banking business from securities business. Article 65 of the
SEL prohibited banks from engaging in securities business.
When the FIEL was enacted, some people expected that the demarcation
of banking and securities businesses would be further relaxed. However, the
system of segregation as previously provided by Article 65 of the SEL is main-
tained in the FIEL. The FIEL provides that banks, financial institutions with
a cooperative structure, and other financial institutions, in principle, shall not
conduct securities-related business or investment management business (Art. 33,
para. 1). If these entities effect purchase and sale of securities for the purpose of
investment, or by entrustment, they are exempted. ‘Securities related business’
as defined in the FIEL covers not only securities business, but also businesses
involving derivatives transactions concerning securities (Art. 28, para. 8). This
concept, which corresponds to the ‘securities business’ under the SEL, demar-
cates the boundary between FI businesses and banking businesses. Again, the
concept of FI is not relevant here. Instead, another concept, ‘securities related
business’, is used.
The segregation of the securities and banking business was substantially eased
in the United States in 1999. It is coming under scrutiny in Japan. The FSC began
the review of the firewall between businesses within the same financial group in
the autumn of 2007.³² However, there is a concern that in light of the lax compli-
ance system of financial conglomerates in Japan, namely their low level of aware-
ness of the conflict of interests, the abolition of the segregation may result in
‘tragedies for customers’.³³
³² Nikkei, 13 June 2007.

³³ ‘Tonari no shibafu wa aokunai (The Neighbour’s Turf is Not Green)’, Nikkei, 12 June 2007.
What is important in this part of the FIEL is that the sale and its solicitation
of interests in the collective investment scheme by the scheme arranger itself have
now become regulated as category II financial instruments business.³⁴ Under the
SEL, the offer of securities by the issuer itself was not regulated. However, in
recent years, problems have occurred in cases involving such ‘self-offers’. In the
above-mentioned Heisei Denden case, a fund (silent association) offered shares in
its scheme, which invested in a certain business company, to a number of investors.
This business company was related to the fund and was the recipient of finance
from the latter. Then the business company collapsed, causing investors a huge
loss.
The FSC Sub-Committee report had recommended that ‘self-offer’ and ‘self-
management’ by the scheme arranger should be regulated by the FIEL. Under the
FIEL, the offer falls within category II FI business, and the management of the
scheme is categorised as investment advisory business and, thus, is regulated.
FIFs are prohibited from:
• transaction with the FIF itself, its directors, or officers;
• transaction between the assets which the FIF manages;
• transfer of profit from one fund to another under the same management;
• transaction without justifiable grounds for the pursuit of profit of the FIF or a
third party;
• transactions under terms which are not normal and which would harm
contributors;
• usage of information obtained through investment management for securities
transaction on their own account;
• compensation of loss.
An FIF, when managing investment, is under an obligation to segregate the assets
from its own assets and the assets which it is managing for other entities.
8. Conduct Rules Applicable to FIFs
FIFs are subject to a broad range of conduct rules. To FIFs in categories I and II
businesses, the following duties apply:
• General duties:
– duty of sincerity and fairness;
– duty to display signs.
• Conduct rules:
– observation of rules regarding advertisement;
– duty to explain the form of transaction in advance;
³⁴ Ueyanagi and Ishidoya, supra, p. 53. Osaki, supra, pp. 42–44.

– duty to provide information in writing before the conclusion of the

contract;
– duty to provide documents at the time of the conclusion of the contract;
– requirement of adequate handling of customer information;
– duty of defining the best execution policy.
• Prohibitions:
– ‘name lending’;
– provision of false information, conclusive judgment;
– uninvited solicitation regarding certain products;
– uninvited visits;
– compensation of loss on the part of customers.
• Suitability principle in relation to potential customers.
• Duty to carry out the business in the best possible manner.
Many cases have reached the court regarding the suitability principle. The suit-
ability principle means that customers should be solicited only in accordance with
their knowledge, experience, financial state, and the goal of their investment (Art.
40, para. 1). In a case where a director who was in charge of finance at a company
made a huge loss and his company sued a securities company, claiming that solici-
tation of options trading was against the suitability principle, the Supreme Court
ruled that if a representative of the securities company solicits securities transac-
tions in substantial breach of the suitability principle—e.g. actively solicits transac-
tions which obviously involve excessive risk—against the intention and the actual
status of the client, this would constitute a tort. However, in this particular case,
the court, by taking into account the experience of the client in securities invest-
ment, denied that this was substantially in excess of the suitability principle.³⁵
The Law also lists activities prohibited to securities companies and their
directors and employees. Soliciting customers by providing a conclusive opinion
as to the price fluctuation of securities is prohibited (Art. 50). In general, secur-
ities companies (or their directors and employees) are obliged to deal with cus-
tomers in a fair and honest way (Art. 49). There have been cases where a customer
sued a securities company for unlawful soliciting. In several cases, where a sales
representative of a securities company solicited investment by giving a conclusive
opinion, the courts have ruled in favour of customers.³⁶
9. Professional and Non-professional Investors

While in the SEL, conduct rules were generally applicable without distinguish-
ing professional investors from ordinary investors, the FIEL has introduced the
³⁵ Judgment of the Supreme Court, 14 July 2005, Minshū 59-6-1323.

³⁶ Judgment of the Tokyo District Court, 4 February 1994, Hanta, 841–271.
distinction between professional and ordinary investors. Rules designed to place
the FIF and the investor on an equal footing—such as the duty of the FIF to
explain and provide documents before and on the occasion of the conclusion of
the contract, rules on advertisement, and the principle of the suitability—are
applicable in relation to ordinary investors only. However, various prohibitions,
e.g. the prohibition of compensation of loss, are still generally applicable to pro-
fessional investors. The cabinet order provides for details.
What is important is that these categories are interchangeable to a certain
extent, i.e. some professional investors may opt to be treated as non-professionals
and vice versa. However, there are some professionals who cannot choose to do
so. The same applies to certain categories of non-professionals.
• Professional investors who cannot opt to become non-professional investors:
– qualified institutional investors;
– the State;
– Bank of Japan.
• Professional investors who can opt to become non-professional investors:
– local governments;
– government corporations and institutions;
– listed companies;
– companies with a capital of 500 million yen or more.
• Non-professional investors who may opt to become professional investors:
– juridical persons other than those above;
– individuals with one year or more of trading experience who can be reason-
ably assumed to have more than 300 million yen of net assets and financial
assets;
– individuals who manage a partnership (if the partnership has more than
300 million yen of investment, consent of all members is required).
Qualified institutional investors—a concept which originated under the SEL—
include securities companies, banks, insurance companies, credit unions and
cooperatives, and investment corporations.
If an individual opts to be treated as a professional, he can propose this to the
FIF for each category of contracts. The FIF must verify that this individual is
indeed qualified, and must provide him with details of exemptions and the risk
involved in writing.
10. Reforms Concerning the Self-regulatory System
The FIEL has replaced the concept of the stock exchange with that of financial
instruments exchange. At the moment, there are stock exchanges and a finan-
cial futures exchange (Tokyo Financial Exchange) which are organised as joint
stock companies. They come under the same category of financial instruments
exchange under the FIEL and are subject to the same set of rules. The FIEL does
not obligate these exchanges to use the name ‘financial instruments exchange’,
but merely requires that the term ‘exchange’ is used in their name. Therefore,
they can continue to operate as a stock exchange or a financial exchange.
On the other hand, in light of the conversion of the exchanges into joint stock
companies since 2001, the FIEL has introduced novelties regarding self-regulation
of financial instruments exchanges. FIEs may set up a self-regulatory entity
(juridical person) and entrust it with ‘self-regulatory businesses’. These are:
• Listing and delisting of financial products, financial indexes, and options.
• Review of compliance of law, regulations, and rules by the members.
There is an option of setting up a self-regulatory committee within the exchange,
instead of a self-regulatory juridical person. This seems to be an easy-going option,
but to what extent this can be effective is questionable.
11. Rules against Unfair Trading
(1) The general clause

The FIEL has more or less inherited the provisions regarding unfair trading
from the SEL. It provides for safeguards against unfair and fraudulent trading
practices.³⁷ There is a general provision against fraudulent transactions which
prohibits employing a fraudulent device, scheme, or artifice with respect to sale
and purchase and other trading involving securities and derivatives transactions
(Art. 157, subpara. 1).
Th is provision has its origin in the US Securities Exchange Act Section 10-b
and Rule 10-b (5). Whereas in the United States this provision has been duly
enforced, in Japan there are few cases where this provision was applied. Before
1988, when strict regulations were introduced, insider trading was supposed
to be covered by this provision, but no one was prosecuted for insider trad-
ing under it. In the United States court judgments and the decisions of the
Securities and Exchange Commission have produced a body of precedent that
has helped to clarify this somewhat vague provision. In contrast, the principle
of nulla crimen sine lege is strictly applied in Japan, and it was thought to be dif-
ficult to sustain a prosecution on the basis of this provision.
In addition to this general provision, there are specific provisions that cover
acts such as market manipulation, insider trading, and the spreading of rumours.
³⁷ For the regulation of unfair trading, see I. Kawamoto and Y. Otake, Shōken-torihiki-hō
Tokuhon (Thesis on the Securities and Exchange Law), 7th edn (Tokyo, 2006), p. 311ff.
Earning profits through the false presentation of significant facts or a failure to
disclose such facts in the documents is also prohibited (Art. 157, subpara. 2).
(2) Market manipulation

It is prohibited to effect sale and purchase of securities or derivatives transac-
tions without the intention of transferring rights, or monetary instruments with
the purpose of misleading people into the belief that there is heavy trading in
securities, market, or over-the-counter derivatives trade (Art. 159, para. 1). A
sham transaction that involves no change in the ownership of securities, and false
active trading in collusion with another person are both banned. Neither shall
one trade in securities or offer commission, or be commissioned for trade which
misleads people into believing that the there is heavy trading in securities mar-
ket, or over-the-counter derivatives trade with the purpose of soliciting them into
transactions. It is also unlawful to spread the rumour that the market will fluctu-
ate as a result of the manipulation by oneself or a third party, or to intentionally
make a false or misleading presentation for the same purpose (Art. 159, para. 2).
Those who are in breach are liable for the losses resulting from the manipulation
(Art. 160, para. 1). Criminal penalties are also available (Art. 197).
Until the 1980s there had been no case where a company or individual was
found guilty of manipulating the market, although there had been instances
where such an act was suspected. However, in the mid-1980s several cases reached
the court. In one case, directors of a company that offered shares to the public at
market price collaborated with executives of a securities company and purchased
shares in the market in order to raise the price at the time of the offer, using
funds provided by the company and its affiliates. Those involved were prosecuted
and the district court, relying on circumstantial evidence, found the defendants
guilty. The judgment in this case was upheld by the Supreme Court.³⁸
In another case, an investor in collusion with a managing director of a real
estate financing company, repeatedly sold and bought shares of the same com-
pany through 28 securities companies within six months and raised the market
price of those shares. This was found to be a sham transaction with no transfer of
rights, and the defendants were convicted.³⁹
It is not easy to prove the existence of market manipulation. There must have
been an intention to solicit trading, but this is often difficult to substantiate.
In the above-mentioned Kyōdō-Shiryō case, the Supreme Court ruled that the
‘purpose of soliciting trading’ in the context of market manipulation means the
purpose of misleading investors to believe that the artificial price level resulting
³⁸ Judgment of the Tokyo High Court, 20 July 1988, Hanji 1305–52. Decision of the Supreme
Court, 20 July 1994, Hanji 1507–51 (Kyōdō-Shiryō case).
³⁹ Judgment of the Tokyo District Court, 3 October 1994, Shiryō-ban Shōji-Hōmu 128–166
( Japan Unysis case).
from manipulation was formulated by real supply and demand in the market,
and soliciting them to trade in these securities.⁴⁰
In the 1980s major securities companies often resorted to a ‘campaign method’
of marketing securities. Customers were advised by a securities company in a
systematic manner to purchase or sell shares of a specific company. If this is prac-
tised on a large scale it can have the same effect as market manipulation. In one
case, a major securities company advised customers to purchase shares of a rail-
way company, and at the same time repeatedly traded in these shares. The share
price went up as a result. By coincidence, a favoured customer of the company
had been holding these shares.⁴¹ The SEL was duly amended and the soliciting
of specific and limited kinds of securities to unspecified and numerous customers
in a systematic and excessive way for a certain period which may affect fair price
formulation is now prohibited (Art. 38, para. 6).
(3) Compensation of losses

In 1991, it came to light that a number of securities companies compensated
the loss which their favoured customers incurred in the securities market. About
three-quarters of compensation involved losses incurred via discretionary fund
management accounts which were entrusted to the brokerage department of
such companies.⁴² Some securities companies were suspected of guaranteeing a
certain level of return from investment to major customers.
Before these incidents scandals in 1991, the SEL prohibited promises to com-
pensate losses, but actual compensation without a prior promise was arguably
not unlawful, although a circular from the securities bureau director prohibited
such an act. With the amendment in 1992, not only the promise to compensate
losses or the difference between the guaranteed and the actual profit, but also the
compensation of losses and supplementing profits are prohibited by law (Art. 39,
para. 1). Customers are also prohibited from receiving compensation or supple-
mentary payment and from demanding such payments. These acts are subject to
criminal penalties (Arts 198-3 and 207).
Discretionary accounts, i.e. accounts in which the fund manager has discre-
tion over whether to sell or purchase securities, which securities to deal with, and
the amount or price without specific instruction from the account holder, were
prohibited. It was also prohibited to conclude an agreement with another person
to let this person act on behalf of the principal in instructing trust companies
without receiving specific instructions from the principal. This ban was intro-
duced in 1991 in the aftermath of the securities scandals.
Despite these amendments, compensation of losses still occurred. In 1997
major securities companies were again found to have paid compensation to their
⁴⁰ See Kawamoto and Ōtake, supra, pp. 312–322. ⁴¹ Ibid., p. 322.

⁴² Financial Times, 5 August 1991.
favoured customers. The directors involved were prosecuted for violation of the
SEL.⁴³ However, in the FIEL, as part of deregulation, the general prohibition on
discretionary accounts was lifted, and in principle, they are allowed.⁴⁴
(4) Insider trading

Until 1988, at the height of the ‘bubble economy’, the SEL was unable to cope
with insider trading in an effective way. Insider trading was seldom exposed. This
is not to say that insider trading seldom happens in Japan. Because of the absence
of an explicit provision banning insider dealing, it was pointed out that people
fail to perceive insider trading as being unlawful and often engage in such prac-
tices. There have been cases where the price of shares soars immediately before a
company increases its capital or announces a new product. Insider dealing was
suspected in such cases, but it was difficult to prove, and most cases ended up
with a warning from the stock exchange to the company concerned.
In 1987, a medium-sized chemical company, which was heavily involved in
‘financial technique’, i.e. the practice of business companies investing surplus
funds in the securities market in order to bolster profits, fell into financial diffi-
culties. It lost 20 billion yen in the sharp fall of the Japanese bond market. One of
the banks which held shares in the company sold its holdings one day before this
company announced its losses. Furthermore, a large number of shares was sold
on that day. The Ministry of Finance and the Osaka Stock Exchange investigated
the case. Both failed to prove the existence of insider trading, but the former
found that the bank had acted against the informal guidance of the Ministry
issued to listed companies, and was ‘morally responsible’.⁴⁵
There is a provision which regulates short-swing trading. This provides for
the recovery of unfair profits obtained by directors or major shareholders of a
company by using information available to them because of their positions. If
such persons make a profit by purchasing shares within six months after the
sale, or selling shares within the same period after the purchase, the company
may require the surrender of such profits to the company (Art. 164). This provi-
sion was applied even while insider trading was not explicitly prohibited by law.
There was a case where a director of a company contested the constitutionality of
the ban on short-swing trading and the surrendering of the profit. The Supreme
Court found that this provision entitles the company to require a director or a
major shareholder to surrender the profit, regardless of whether that person has
utilised confidential information or not, or whether the interests of investors have
actually been harmed or not. The Court denied that this was against Article 29 of
the Constitution which provides for economic freedom.⁴⁶
⁴³ Securities Surveillance Commission (ed.), Shōken-torihiki-kanshi-iinkai no Katsudō Jōkyō

Heisei 10 nen (Activities of the Securities Surveillance Commission 1998) (Tokyo, 1998), pp. 8–21.
⁴⁴ Kuronuma, supra, 2nd edn (2008), p. 165. ⁴⁵ Nikkei, 7 October 1987.
⁴⁶ Judgment of the Supreme Court, 13 February 2002, Minshū 56-2-331.
The move for strengthening control over insider trading was accelerated by
the internationalisation of stock markets. With the close links which developed
between the stock markets of the United States, Europe, and Japan, concerted
international efforts to prevent insider trading across the border became indis-
pensable. The above incident involving a bank accelerated this move. Finally,
amendments were made to the SEL in 1988 in order to strengthen controls over
insider trading. A new provision on insider trading carried out by ‘people con-
nected to the company’ was introduced. Those who come to be aware of material
facts concerning the business of listed companies are not allowed to sell or pur-
chase securities of the company or otherwise trade in them for profit, or effect
derivatives transactions until these facts have been announced to the public (Art.
166, para. 1). Public announcement is deemed to have been made if the informa-
tion is notified to the stock exchange and is put on its website.
‘People connected to the company’ include board members or employees of a
listed company, its major shareholders holding more than three per cent of the
issued shares of the company or 3 per cent of the entire vote, those who have
statutory power over that company (e.g. ministerial officials responsible for super-
vising the industry), and those who are in contractual relations or in the process
of concluding a contract are insiders. If the above person is a juridical person, its
board members and employees are considered to be insiders.
Furthermore, those who have received the information from the above persons,
or are officers etc. of the juridical person to which the person who received the
information belongs, are under the same obligation before the public announce-
ment of material facts (quasi-insiders).
There is an extensive list of ‘material facts’. These include the decision by the
executive body of the company relating to the offering of shares, reduction of cap-
ital and/or reserves, share buy-back, the exchange or transfer of shares, mergers,
splitting of the company, or a decision refraining from the above. Losses arising
from natural disasters as well as the change of major shareholders are also mater-
ial facts. In addition, a ‘catch-all’ clause covers ‘material facts concerning the
management, business, or the assets of the company, which substantially affect
the decision-making of investors’ (Art. 166, para. 2, subparas 4 and 8).
The first case where the Supreme Court ruled on insider trading involved a
pharmaceutical company. This company, Nihon Shōji, produced a new antiviral
medicine and marketed it. The share price went up sharply. Then, the company
discovered that this product had side effects that could be fatal in some cases. In
fact, some people died from taking the medicine. It was reported to the govern-
ment agency, but was not disclosed to investors nor to the public. In the mean-
time, directors and some employees sold the shares they held. The defendant
in this case was a doctor (a dermatologist) who ran a private practice. He was
informed by a sales company marketing the products of Nihon Shōji of the side
effects which had led to the death of some users. The defendant acted on this
information and sold the shares before this material fact was made public.
The Supreme Court ruled that the occurrence of side effects meant that the
given product—the first which the company themselves had developed with a
significant amount of investment—had serious problems, and its future sales
would be affected. As a result, this might have a significant effect on the busi-
ness and the financial state of the company. Therefore, the above catch-all clause
should be applicable.⁴⁷
Concerning material facts, there is another Supreme Court judgment that is
relevant. In this case, a representative director of a company consulted an attor-
ney on the increase of capital and issue of shares to a third party. The attorney
bought shares of this company before this was announced. He was prosecuted
for insider trading. His defence was that the decision of the third party issue had
not been formally taken by the executive body of the company when he traded
in the shares. The High Court accepted this argument, but the Supreme Court
overruled this, pointing out that the ‘executive body’ in this context is not limited
to the formal decision-making body as provided for in the Commercial Code,
but that it is sufficient if this is a body which can make a decision substantially
equivalent to the decision of the company. In order for a decision to be made,
there has to be an intention to issue shares, but it is not necessary that the shares
are expected to be definitely issued.⁴⁸
(5) Spreading of rumours

The spreading of rumours for the purpose of influencing prices is banned (Art.
158). In 1992, a software company announced that they had found a vaccine to
cure HIV and were testing it in Thailand. This announcement had no substance,
but the share price of this company sharply increased. The president of the com-
pany was prosecuted and found guilty. In another case, a fortune teller who had
a column in a newspaper purchased shares in a company, and then, in order to
sell them at a high price, spread some rumour regarding the company. The for-
tune teller was prosecuted and found guilty.⁴⁹ Also in late 1997, when there was
a series of corporate failures, rumours of the imminent collapse of some com-
panies spread, and as a result share prices fluctuated and the Securities Exchange
Surveillance Commission launched an investigation.
(6) Sanctions for unfair trading

Penalties for the breach of regulations on unfair trading were previously rather
lenient. However, in the past decade, penalties have become harsher. At present,
for market manipulation and the spreading of rumours, the maximum penalty
⁴⁷ Judgment of the Supreme Court, 16 February 1999, Jurist, 1999, vol. 1154, pp. 88–89.
⁴⁸ Judgment of the Supreme Court, 10 June 1999, Keishū 53-5-415.
⁴⁹ Kawamoto and Otake, supra, p. 341.
for individuals is 10 years’ imprisonment or a 10 million yen fine; on the basis of

vicarious liability, juridical persons are fined up to a maximum of 700 million
yen (Art. 197, para. 1 and Art. 207, para. 1). For insider trading, the maximum
penalty for individuals is five years’ imprisonment or a five million yen fine, and
the vicarious liability of juridical persons is a maximum 500 million yen fine
(Art. 197-2 and Art. 207, para. 1).
The number of applications by the Securities and Exchange Surveillance
Commission to the Public Prosecutor’s Office for criminal prosecution was
highest in 2006. There were thirteen such cases, of which three involved market
manipulation and nine involved insider trading.⁵⁰
In 2005, a system of surcharge was introduced. The scope of its application has
since been expanded and it now applies to market manipulation, insider trad-
ing, the spreading of rumours and resorting to schemes, and false reporting. The
Securities and Exchange Surveillance Commission conducts an investigation and
makes a recommendation for the imposition of a surcharge. The Chairman of the
FSA makes the decision to commence the hearing procedure. The case is heard by
an administrative judge. The amount of surcharges has been further increased by
the 2008 amendment to the FIEL.
12. Disclosure
The disclosure system has been improving in recent years through successive
amendments to the SEL and later the FIEL. Disclosure has become even more
important as the system moved from paternalistic supervision to self-responsibility.
This presupposes appropriate access to information for investors.
There are three types of disclosure requirement: disclosure at the time of issuing
securities, periodic disclosure, and disclosure on the occasion of a TOB. There is
also a requirement for disclosing a large shareholding.
As a rule, in order to offer newly issued securities or to sell outstanding secur-
ities, a securities registration statement has to be filed with the Prime Minister
(delegated to the Chairman of the FSA, Art. 4, para. 1). An offer of securities in
this context means the soliciting of offers for purchasing newly issued securities
to an unspecified number of investors, i.e. fifty or more investors. If the solici-
tation is made to ‘qualified institutional investors’ who, by cabinet order, are
regarded as not having an intention to resell them, this is not an offer in terms of
this provision (Art. 2, para. 3). Selling shares means offering to sell, or soliciting
the purchase of outstanding shares, effected on uniform terms to an unspeci-
fied number of investors (ibid., para. 4). It should be noted that the allocation of
⁵⁰ J. Naito, ‘Kinyū-Shōhin-Shijō • Shijō-Kanshi-Tōkyoku no Genjō to Kongo no Kadai (The

State and the Future Tasks of the Financial Products Market and the Market Supervisor Authority)’,
Shōji-Hōmu, No. 1812, p. 17. <http://www.fsa.go.jp/sesc/english/reports/re2006.pdf>.
new shares of listed companies to a selected third party does not qualify for this
exception and the disclosure requirement applies.
The securities registration statement contains information such as the state
of business operations, the fi nancial state of the company, and other matters
relevant to the nature of the business (Art. 5, para. 1). The scope of informa-
tion covered by the report has been constantly expanding and includes infor-
mation such as the current price of securities, futures, and options held by
the company, and the state of foreign exchange hedging. In addition to the
securities registration statement, at the time of offer or sale, a prospectus must
be provided to the investors. The prospectus must contain the information
relevant for protecting investors included in the registration statement (Art. 13,
para. 1).
Issuers of securities which are listed on the stock exchange, non-listed com-
panies which have filed a securities registration statement, and companies with
more than 500 shareholders and a capital of 500 million yen or more, must file
an annual securities report each business year (Art. 24, para. 1). This is designed
to provide investors with updated corporate information on a continual basis.
Interim or ad hoc disclosure is required when a fact having material relevance to
the business of the issuer becomes known. Under the timely disclosure policy,
this is effected via TDNET (Timely Disclosure Network) run by the FSA.
In 2006, a further reform of disclosure was made. Firstly, the quarterly dis-
closure system which was in operation by the self-regulatory rules of the stock
exchange was accommodated in the Law. The quarterly report is audited by the
accountant/accounting firm, and a false statement is subject to criminal penalties
(Arts 24-4-7 and 193-2).
In line with the US Sarbanes-Oxley Act, listed companies are now required
to submit an ‘internal control report’ regarding financial statements and have
it audited. Furthermore, the management must submit a document confirming
that the content of the securities registration report and the quarterly report is
appropriate in accordance with FIEL and other laws (Arts 24-4-2, 24-4-8, and
24-4-4).
Disclosure is also required when a TOB is made. A tender offer notification
must be filed with the Prime Minister by the person offering to purchase shares.
A copy must be sent to the issuing company (Art. 27-3, paras 2 and 4). The tender
offerer is also obliged to place a public notice in a daily newspaper and disclose
information such as the purpose of the tender offer, and the price and number of
shares to be purchased (Art. 27-3, para. 1).
In 1990 a new disclosure requirement for large shareholdings was introduced
in order to provide investors with information concerning the percentage of the
holding, sources of finance, the purpose of acquisition, etc. This covers those
who, in their own name or in another person’s name, came to hold more than 5
per cent of the outstanding shares of a listed company or a company whose shares
are traded over the counter. They are required to file a report within five days of
their acquisition of the shares (Art. 27-23, para. 1). A report is needed for the sub-
sequent change of 1 per cent in the holding.
However, in a takeover case in 2005, it was found that this system was not func-
tioning well, since, for investment funds, the time limit for disclosure was fairly
lax. This was tightened by the amendment to the SEL in 2006. Another recent
change was the requirement of the report on the state of share buy-back, follow-
ing the liberalisation of share buy-back by the amendment to the Commercial
Code in 2001 (Art. 24-6).
13. Tender Offer (Takeover Bids, TOB)
A TOB is defined as an offer or solicitation of an offer of sale or purchase of

shares and other securities (e.g. share options) to an unspecified large number
of people via public announcement and by purchasing shares off the stock
exchange (Art. 27-2, para. 6). In fact, this was not because there was a real need
for it, but was because the legislature simply wanted to be prepared for poten-
tial takeovers.⁵¹ The system was more favourable to the defending company
rather than the bidder, since it was feared that Japanese companies might be
taken over by large foreign companies. However, this came under criticism at
the US–Japan Structural Impediments Initiatives Talk in 1989/1990, and the
system was streamlined. For example, under the previous system, an advance
reporting to the Ministry of Finance was required in order to initiate the bid,
and the reporting of the TOB took effect after ten days. Only then could the
bidder publicise the bid. Th is requirement was dropped. The period for the pur-
chase was a maximum of thirty days. Th is was extended to a maximum of sixty
days.
Unlike in the US, the TOB was seldom used for hostile takeovers in the 1990s.
It was primarily used for the reorganisation of corporate groups. However, since
the late 1990s, the number of TOB and the amount involved have steadily
increased (see chapter 11).
Around the same time, cases of TOB for hostile takeovers began to emerge.
The first case of a hostile takeover involved the takeover of a Japanese company
by Cable and Wireless in 1999.⁵² The next year, a German company, Beringer
Ingelheim, made a successful takeover of a Japanese pharmaceutical company,
but this was not necessarily hostile in nature.
The number of TOB for hostile takeovers increased in the 2000s, including
the celebrated Bulldog Sauce case which reached the Supreme Court. However,
as late as 2008, there has not been a successful takeover of a listed company
by TOB.
⁵¹ Kawamoto and Otake, supra, p. 197.

⁵² The target company was not a listed company.
Number of Cases Amount (100 million yen)
110 40000
100 35000
90 Total Amount
80 30000
70 Number of Cases
25000
60
20000
50
40 15000
30 10000
20
10 5000
– 0
1972
~1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Figure 13.1 Reported TOB cases and published amounts involved
Source: RECOF⁵³
If, via off-the-exchange purchase of shares, a person in conjunction with a spe-

cial related person is to come to hold more than 5 per cent, this purchase must
go through the TOB procedure. If the purchase is by the over-the-counter trade,
or from a very small number of persons, the TOB is not mandatory. However,
even if the purchase is from a very small number of people, if the shares held after
the purchase will exceed one third, this has to go through the TOB procedure
(Art. 27-2, para. 1, subpara. 2). By the 2006 amendment, ‘expedient purchase’
became subject to the TOB procedure. ‘Expedient purchase’ means, (i) within
three months, (ii) off the exchange purchase exceeding 5 per cent, and (iii) in
conjunction with on the exchange purchase, purchase off the exchange, or via
new issue of more than 10 per cent, and as a result, the shareholding exceeds one
third (Art. 27-2, para. 1, subpara. 4).
If there is a bid taking place, and a shareholder who holds more than one third
of the shares is to further purchase more than 5 per cent of shares, even if the
shares are to be purchased on exchange, the purchase must go through the TOB
procedure.
The period of TOB is set by the bidder, but has to be within 20 to 60 working
days from the public announcement of the bid (Art. 27-2, para. 2). During this
period, the bidder is not allowed to purchase shares by means other than the TOB
procedure (Art. 27-5). The target company is entitled to ask for an extension.
Some terms of purchase can be modified, but for example, the purchase price
or the number of shares to be purchased cannot be reduced once the bid has
been made. As a rule, the bidder is not allowed to withdraw the bid. By the 2006
⁵³ <http://www.recofdata.co.jp/mag_marr/details/graphe/>.
amendment, some new exceptions to this rule were added. If the target com-
pany resorted to defensive measures and issued new shares or share options, the
bidder may withdraw the bid. The same applies if the target companies borrowed
a substantial amount of money or disposed of significant assets after the bid.
The 2006 amendment introduced a system akin to the mandatory bid in the
UK. If, after the bid, the shareholding of the bidder exceeds two-thirds, the bidder
is under an obligation to purchase all the shares offered (Art. 27-13, para. 4). In the
UK, the threshold is one third. Presumably, the possibility of being de-listed was
taken into account when setting the threshold at two-thirds in Japan.
There is an extensive disclosure requirement in the TOB procedure.
Commencement of the TOB must be publicly announced by providing various
information, and an explanatory document needs to be handed to the offerors.
The target company must submit their opinion on the bid to the Prime Minister
(delegated to the Director of the Financial Bureau) within ten working days from
the public announcement of the bid (Art. 27-10, para. 1). It must disclose the
defensive measure in place also. In the opinion, the target company is entitled to
put questions to the bidder. The response by the bidder must be submitted to the
Director of the Financial Bureau within five working days (Art. 27-10, para. 11).
The bidder may refuse to answer a particular question by giving a reason.
On the day after the end of the TOB period, the bidder must publicly announce
or notify the outcome of the bid (Art. 27-13, para. 1).
14. Supervision of the Market
The Ministry of Finance was in charge of supervising banks, securities com-

panies, and insurance companies until June 1998, when a new agency—the
Financial Supervisory Agency (now the Financial Services Agency)—came into
operation.
This lack of transparency and accountability in the financial system was
highlighted in 1991 in the wake of the incidents involving securities compan-
ies. Major securities companies were found to have compensated losses suffered
by favoured customers through their discretionary accounts. The Ministry had
encouraged securities companies to close these accounts earlier. Securities com-
panies were of the view that the Ministry had tacitly allowed compensation
when closing these accounts, which was denied by the Ministry. In 1997, when
Yamaichi Securities, one of the then ‘Big Four’, was found to have concealed
losses in overseas companies and failed to disclose them, it was alleged that the
company had acted upon the advice of the Ministry.⁵⁴ In the same year, another
series of scandals broke out. It was revealed that a major bank had financed an
obscure businessman who proceeded to purchase shares of the ‘Big Four’ securities
⁵⁴ Nikkei, 30 January 1999.

companies. These securities companies unlawfully compensated the losses of this
businessman.⁵⁵ This cast further doubt on the ability of the Ministry to supervise
the industry.
In the aftermath of the incidents in 1991, the possibility of setting up an agency
to supervise the securities industry was discussed. There was a proposal to estab-
lish an independent administrative commission in charge of regulating financial
institutions such as the US SEC. After heated political debate, eventually instead
of an independent agency overseeing the whole range of financial institutions,
the Securities and Exchange Surveillance Commission was set up as a watchdog
over the securities and financial futures market. It was made part of the then
Ministry of Finance.
In the course of the financial Big Bang which was announced in 1996, a
new agency—the Financial Supervisory Agency—was founded in June 1997
and started operation in June 1998. The Securities and Exchange Surveillance
Commission became part of this Agency. However, with the deepening of the
banking crisis in 1999, soon after the Agency came into operation another agency,
the Financial Reconstruction Commission, had to be set up. The Financial
Supervisory Agency was made part of this commission, which had ministerial
status, in 2000. When the Financial Reconstruction Commission was abolished
in 2001, the Agency, which was re-named the Financial Services Agency, became
part of the Prime Minister’s Office.
The Law on the Establishment of the Financial Services Agency provides that
the Agency’s primary task is to inspect and supervise banks, securities companies,
insurance companies, and stock exchanges in order to ensure that these entities
carry out their business in an appropriate way and are soundly managed. The
Agency also carries out surveillance of trading in securities in order to ensure fair-
ness of transactions. The Agency’s Financial Intelligence Unit handles matters
concerning the prevention of money laundering.
⁵⁵ Shōken-torihiki-kanshi-iinkai no Katsudō Jōkyō, supra, pp. 6–25.

14
Anti-Monopoly Law
The industrialisation of Japan, which started in the late nineteenth century, was
initiated and promoted by the government from above, rather than by the spon-
taneous growth of entrepreneurs from below. Initially the government created
and managed key industries and then handed them over to companies in the
private sector at extremely low prices. This eventually led to the domination
of the economy by a handful of giant business conglomerates called zaibatsus.
Monopolisation of the economy was reinforced in the 1930s when the govern-
ment adopted measures to facilitate the military build-up. In 1931 the Law on
the Control over Key Industries, which encouraged the forming of cartels, was
enacted. Following the enactment of the National General Mobilisation Law in
1938, in the early 1940s in almost every key industry an association of com-
panies called tōsei-kai (controlling associations) was formed under the auspices
of the government to implement government industrial policy. Thus, concen-
tration of economic power was not regarded as a negative phenomenon. There is
an influential view which maintains that the ‘uniquely Japanese system’, such as
the close government–industry relationship, the main bank system, and the life-
long employment system can be traced back to this period, but not to an earlier
period.¹
After the Second World War democratisation of the economy was one of the
primary goals of the Allied Forces. This included the dissolution of zaibatsus and the
elimination of the excessive concentration of economic power. Zaibatsus were dis-
mantled and their shares sold to the public. By virtue of the Law against Excessive
Concentration of Economic Power, especially large companies were split into
smaller companies. It was against this background that the Law on Prohibition
of Private Monopoly and Ensuring of Fair Trade (hereafter the Anti-Monopoly
Law) was enacted in 1947.² In the same year, the Fair Trade Commission was
established as the agency in charge of implementing this law. The Commission
¹ Y. Noguchi, 1940 Nendai Taisei (The 1940s Regime) (Tokyo, 1995), pp. 20–62.
² Law No. 54, 1947. An unofficial English translation of this Law can be found at <http://www.
jftc.go.jp/e-page/legislation/ama/amended_ama.pdf>.

(hereinafter the FTC) is organisationally attached to the Cabinet Office, but is
guaranteed independence and has quasi-judicial and quasi-legislative powers.
The Anti-Monopoly Law was heavily influenced by the antitrust legislation of
the United States. It was even stricter than the US law in some respects, since US
advisers to Japan were inclined to support the precepts of the New Deal policy,
and they intended to introduce a system which they had failed to implement fully
in the United States. For example, business companies were completely forbid-
den from holding other companies’ shares. However, this Law was considered to
be too stringent for Japan, where the idea of regulating the concentration of eco-
nomic power had previously been alien. Therefore the restrictions introduced by
the 1947 Anti-Monopoly Law were relaxed by an amendment in 1953, soon after
the end of the Allied occupation.
Exemptions to the prohibition of cartels were introduced by this amendment
and later expanded by separate laws. In 1995 over a hundred laws provided for
exemptions. These exempted cartels were remnants of the 1950s when Japan was
in the process of recovering from the war, and were not in operation any more.
Some exemptions were still in place, but towards the end of the 1990s, their num-
ber was greatly reduced.³
In reality, the Anti-Monopoly Law was not strictly enforced in the first two
decades of its existence. A report published in the late 1950s pointed out that
nowhere in the industry was the price unaffected by cartels. There were some
mergers in the 1950s and 1960s in which the FTC failed to act despite the poten-
tial effects of the merger on the market structure.⁴
The first major reform of the Anti-Monopoly Law since 1952 took place in
1977. At this time there was considerable public criticism of the behaviour of
some large companies during the oil crisis in 1973. The celebrated Petroleum
Cartel case was exposed and participants were prosecuted. For the first time in
the history of the Anti-Monopoly Law, the Law was strengthened. This amend-
ment introduced, inter alia, surcharges for operating cartels, the new concept of
‘monopolistic situation’, and the mandatory submission of reports to the FTC
in cases of simultaneous price rise by several leading entrepreneurs of the same
product or service, if it had taken place within three months.
Despite these changes, the Anti-Monopoly Law was still not implemented at
its full strength until the late 1980s. In terms of substance, the Anti-Monopoly
Law was no less stringent than its counterparts in the United States and Europe
in its scope. Its lax enforcement was criticised by other countries.⁵
The US–Japan Structural Impediments Initiatives Talks which started in 1989
resulted in an overall review of the Anti-Monopoly Law and its implementation.
³ Annual Report of the FTC for 1997: <http://www.admix.jftc.go.jp/>.

⁴ K. Sato et al. (eds), Text Dokusen-kinshi-hō (Text: Anti-Monopoly Law), revised edn (Tokyo,
2006), pp. 17–18, 208–210.
⁵ T. Kanai et al. (eds), Dokusen-kinshi-hō (Anti-Monopoly Law), 2nd revised edn (Tokyo, 2008),
p. 411.
Anti-Monopoly Law 329
The US side argued that unfair and restrictive trade practices in Japan were
impeding the entry of foreign companies into the Japanese market. Practices
such as cross shareholding and the keiretsu (business affiliation) system had made
it difficult for foreign companies to enter the Japanese market. The Japanese gov-
ernment undertook to strengthen the Anti-Monopoly Law and to reinforce its
implementation.⁶
In 1991, the level of surcharge for illegal cartels was increased by four times
and the maximum fine was raised from one million to 100 million yen. As agreed
in the SII Talks, a guideline on the distribution system and business practices was
published in the same year. Concerning implementation, while the FTC used to
rely on informal measures rather than formal proceedings before, since the early
1990s it has come to rely more on the latter. The number of criminal prosecutions
for cartels has also increased. In 1991, for the first time since the oil crisis in the
1970s, criminal proceedings were initiated against a cartel. The FTC announced
that it would resort to criminal prosecution in cases of cartels (including bid-
riggings) which are malicious and significant in effect, and also where the act has
been repeated.⁷ Since then there has been a prosecution every few years.
The policy of strengthening enforcement has continued in the 2000s. In 2005,
there was a major amendment to the Anti-Monopoly Law:⁸
(i) the scope of the application of surcharges was extended and the amount of
surcharges was substantially raised;
(ii) whereas previously, the decision of the FTC was based upon the acceptance
of the informal recommendation by the party involved, or the hearing pro-
cedure of the preceding cease and desist order, the FTC is now empowered
to issue a cease and desist order straight away;
(iii) previously payment of the surcharge could be ordered only after the hearing
procedure, but now a surcharge order can be issued at the same time as the
cease and desist order;
(iv) the investigative power of the FTC was strengthened;
(v) penalties for failure to cooperate or obstructing the investigation were
introduced;
(vi) the hearing procedure was totally revised—the hearing procedure previ-
ously preceded the formal decision of the FTC, but now it has become a
procedure to review the decision of the FTC.
On the other hand, the drive for deregulation since the mid-1990s has also had
effects on the Anti-Monopoly Law. Before the Second World War, business con-
glomerates controlled groups of companies through holding companies. As part
⁶ Nichibei-kōzō-kyōgi Saishū-hōkoku (The Final Report of the US-Japan Structural Impediments

Initiative) (Tokyo, 1990), pp. 86–97.
⁷ Sato et al.(eds), supra, p. 332.
⁸ A. Tamaki, Atarashii Dokusen-kinshi-hō (Th e New Anti-Monopoly Law) (Tokyo, 2006), pp.
94–103.
of the post-war reform, holding companies came to be totally prohibited after the
Second World War in order to prevent the re-emergence of such conglomerates.
Companies had always been against the total prohibition of holding compan-
ies. It was repeatedly pointed out that Japan was one of the very few countries
in which holding companies were totally banned. The proposal for liberal-
isation gained support in the mid-1990s as part of the drive for deregulation.
Proponents of liberalisation argued that holding companies were needed to
make business more efficient and competitive. It was also hoped that holding
companies could be instrumental in reshaping the financial system, which was
in the process of dismantling the segregation of banking, securities, and insur-
ance business. The FTC was initially cautious, but eventually changed its stance,
and in 1997, the Anti-Monopoly Law was amended in order to liberalise holding
companies in principle, despite some doubts about its potential negative effects
on competition.⁹
2. Outline of the Anti-Monopoly Law
The Anti-Monopoly Law declares that its goals are to ‘promote free and fair
competition, to stimulate creative initiatives by entrepreneurs, to enhance busi-
ness activities, to increase the level of employment and the real income of the
people, and thereby to ensure the interests of consumers and to promote the
democratic and sound development of the national economy’. In order to achieve
these goals, the Law prohibits private monopolisation, unfair restraint on trade,
and unfair trade practices as well as the excessive concentration of economic
power (Art. 1). The prohibition on excessive concentration of economic power
involves merger control as well as controls over holding shares. While these meas-
ures address specific actions or the behaviour of entrepreneurs and others, in
1977 measures aimed at the market structure per se—control over ‘monopolistic
situations’—were introduced. In an extreme case, the splitting of a major company
is possible under this new system.
The agency in charge of implementing the Anti-Monopoly Law is the FTC. The
FTC is attached to the Cabinet Office (Art. 27). The Chairman and four com-
missioners are appointed by the Prime Minister with the consent of both Houses
of the Diet, and the Chairman is attested by the Emperor. They are required to
be over 35 years old and to have sufficient knowledge of either economics or law.
Once appointed they may not be removed against their will, except in cases spe-
cified by law (Art. 31). They are guaranteed independence in the exercise of their
duties (Art. 28).¹⁰
9
See O. Tanihara, Dokukin-hō 9 jō no Mondai-ten (Problems of Article 9 of the Anti-Monopoly
Law) (Tokyo, 1997).
¹⁰ Judgment of the Tokyo High Court, 26 September 1980, Hanji 983–22.
The FTC was modelled on the US system of administrative commissions. It is

vested with quasi-legislative and quasi-judicial power. An example of the quasi-
legislative power is the designation of unfair trade practices (Art. 2, para. 9). The
current designations can be found in the FTC Notice 1 18 June 1982. The FTC
may also adopt administrative rules concerning procedural matters (Art. 76). The
FTC’s quasi-judicial power is reflected in its procedure to decide upon violations
of the Anti-Monopoly Law. This procedure is equivalent to the procedure at the
first instance court, and can be appealed to the second instance court (the Tokyo
High Court).
The Anti-Monopoly Law covers the activities of entrepreneurs as well as trade
associations. The Law defines an entrepreneur as a person who carries on com-
mercial, industrial, or financial business (Art. 2, para. 1). They can be either
individuals or juridical persons. Central government agencies as well as local gov-
ernments may also qualify if they are in the above-mentioned businesses.
The Law also covers trade associations, which are defined as associations of
entrepreneurs or a federation of such associations whose primary goal is the
promotion of common entrepreneurial interests. In fact, in almost every area of
industry there is a trade association where companies in the given area of trade
are represented. Many of these associations originate from the 1940s tōsei-kai.
Trade associations function as a channel through which policies of the govern-
ment are conveyed to the industry and the views of the industry are conveyed to
the government. Member companies pool and swap information through the
trade association. It is also used as a forum in which differences amongst member
companies are mitigated. On the other hand, it is not uncommon for trade asso-
ciations to impose unreasonable restraints on competition in various ways. In the
celebrated Petroleum Cartel case, the Japan Petroleum Association was found to
have been instrumental in forming a cartel.¹¹
The FTC published revised guidelines on trade associations in 1995 (originally
published in 1979) which stated that the collection of information, management
consultation, and joint businesses conducted by trade associations are normally
not against the Anti-Monopoly Law.¹²
Trade associations are prohibited from: (i) substantially restraining compe-
tition in a specific area of trade; (ii) entering into international agreements or
contracts which involve unreasonable restraint of trade or unfair trade practices;
(iii) limiting the present or future number of entrepreneurs in a particular field
of business; (iv) unreasonably restricting the functions or activities of member
entrepreneurs; and (v) forcing entrepreneurs to employ unfair trade practices
(Art. 8, para. 1).
¹¹ ‘Report Concerning the Activities of Japanese Trade Associations from Perspective of

Foreign-Owned Enterprises’, FTC Japan Views, April 1997, pp. 3–38.
¹² N. Mukaida in J. Atsuya et al. (eds), Jōkai Dokusen-kinshi-hō (Commentary to the Anti-
Monopoly Law) (Tokyo, 1997), pp. 32–33.
Table 14.1 Types of cases handled by the Fair Trade Commission
2003 2004 2005 2006 2007 Total
Private 1 2 0 0 0 3
Monopolisation
Cartels Price cartels 3 2 4 3 6 18
Bid rigging 14 22 13 6 14 69
Other Cartels 0 0 0 0 0 0
Sub-total 17 24 17 9 20 87
Unfair trade Resale price 0 1 0 1 0 2
practices maintenance
Other exclusive 2 1 0 0 0 3
dealings
Obstruction 3 0 0 0 0 3
of trade
Abuse of 2 5 2 2 0 11
dominant
position
Others 0 1 0 1 3 5
Sub-total 7 8 2 4 3 24
Others 0 1 0 0 1 2
Total 25 35 19 13 24 116
Source: FTC, Nenji-Hōkoku, Heisei 19-nen (Annual Report of the FTC, 2007), <http://www.jftc.go.jp/info/
nenpou/h19/19nenpo.html>.
The FTC is empowered to issue cease and desist orders to trade associations,
and even to order dissolution (Art. 8-2).
3. Private Monopolisation
The term ‘private monopolisation’ comes from US Sherman Act. The Japanese
Anti-Monopoly Law defines private monopolisation as business activities by
which any entrepreneur, individually or in combination or collusion with other
entrepreneurs, or in any other manner, excludes or controls the business activities
of other entrepreneurs, thereby substantially restraining competition against the
public interest in a particular field of trade (Art. 2, para. 5). Private monopolisation
is prohibited (Art. 3).
The core of private monopolisation is the ‘exclusion or control’ of other entre-
preneurs’ business activities. Exclusion means acts which make the continuation
of business by competitors or entry into the market by newcomers difficult. In
the Snow Brand Milk Products case, two dairy companies (at one time a single
company which had been split up after the Second World War) were collect-
ing more than 70 per cent of milk supplies in the region. They colluded with an
agricultural bank in the region and the regional Credit Federation of Agricultural
Co-operatives. The bank held 4 per cent of the shares of Snow Brand as well as
2 per cent of the other company, and was a major lender to these companies. The
bank made it a condition of loans to dairy suppliers (farmers) that they must not
supply milk to competitors of the two dairy companies. The Federation imposed
a similar condition for guaranteeing such loans. This bank was actually the sole
source of finance for dairy farmers. For over three years, the bank extended 300
million yen in loans to those suppliers, severely limiting the business of Snow
Brand’s competitors. The FTC found this to be an act of exclusion and the com-
pany was ordered to cease interference with other companies’ activities.¹³
In the Tōyō-Seikan case, a tin-producing company which had a market share
of 74 per cent in conjunction with its subsidiaries forced other companies to give
up a plan to produce some types of tin in-house by threatening to supply other
types of tin which could not be produced in-house. The FTC also found this to
be an exclusion.¹⁴
Control of an entrepreneur’s activity means depriving another entrepreneur
of the freedom of decision-making in their business activities. Typical methods
include holding the shares of a competitor, sending in directors, and abuse of
bargaining power. In the above-mentioned Tōyō-Seikan case, the company held
29 per cent of the shares of another tin-producing company in northern Japan.
Tōyō-Seikan imposed various restrictions on the activities of this company, such
as confining the market to the northern region and blocking the construction of
a plant on the mainland by this company. Construction was allowed only when
the other company agreed to accept various restrictions as to the capacity of the
plant and the secondment of a representative director from Tōyō-Seikan. The
FTC found this to be an exercise of ‘control’ by Tōyō-Seikan. Tōyō-Seikan was
ordered to cease and desist from such acts, and specifically ordered to dispose of
part of the shares which it held in this company.¹⁵
Until the second half of the 1990s, cases concerning private monopolisation
were rare. The reason why there were not many cases of private monopolisation
is attributed to the fact that eligible cases were qualified as unfair trade practices,
rather than private monopolisation.¹⁶ However, in the recent years, the FTC has
become more active in applying this provision. Since 1996, there has been almost
one case of private monopolisation every year.
The first major case in recent times involved a foundation which was set up
to undertake research on hospital food and to improve and disseminate relevant
information. The foundation was delegated power to test medical foods by the
then Ministry of Public Health. In this market, Nisshin Medical Food and
Nax Medical Food were the only wholesalers. These companies, together with
¹³ Hearing Decision of the FTC, 28 July 1956, Shinketsushū 8–12.

¹⁴ Recommendation Decision of the FTC, 18 September 1972, Shinketsushū 19–87 (Tōyō
Seikan case).
¹⁵ Ibid. ¹⁶ Kanai et al. (eds), supra, p.135.
companies within their network, supplied medical foods to virtually all medical
institutions in Japan. The foundation and Nisshin colluded to exclude the entry
of other companies into the business by introducing a certification system and a
registration system of companies supplying medical foods. Nisshin was allowed
to take part in the certification and registration process and effectively excluded
competitors. When the monopoly by Nisshin came under criticism, the founda-
tion and Nisshin decided to allow Nax to enter the wholesale market. The foun-
dation, based upon the proposal of Nisshin, prepared an agreement with Nax, but
Nax’s entry was limited to areas where medical food was not in much demand,
and Nax was obliged to cooperate with Nisshin in blocking new entrants into the
market. The foundation did not certify other wholesalers unless recommended
by either Nisshin or Nax. The FTC ruled that the foundation and Nisshin had
excluded the business activities of producers and suppliers of medical food, and
controlled supply prices and the territory of producers, and had thus effected
private monopolisation.¹⁷
As a result of the 2005 amendment, the surcharge order became available in
private monopolisation in the form of controlling other entrepreneurs’ business.
In recent years, the private monopolisation provision has been used in Japan to
address the situation covered by the essential facilities doctrine in the EU. There
have been some cases where the FTC issued a warning to public utilities and
privatised companies holding essential facilities who were attempting to exclude
competitors.
4. Prevention of Excessive Concentration of Economic Power
(1) Prevention of general concentration of economic power

The Anti-Monopoly Law regulates various types of combinations of companies
in order to prevent the excessive concentration of economic power (control of
general concentration of power).
First, the establishment of a company which, by means of owning shares in
other companies in Japan, comes to have an excessive concentration of power
(literally, power to control business) is prohibited (Art. 9, para. 1). No company,
including foreign companies, may become a company with an excessive con-
centration of economic power by acquiring or owning shares of companies in
Japan (ibid., para. 2). The core of this provision is holding companies, which are
defined as companies whose subsidiaries account for more than half of its total
assets.¹⁸ However, the entities covered by this provision extend beyond holding
companies. Even if a company group comes to have excessive concentration of
¹⁷ Recommendation decision of the FTC, 8 May, 1996.

¹⁸ K. Sato et al. (eds), supra, p. 225.
economic power by means of shareholding without a holding company, it is still

prohibited.
A company which results in an excessive concentration of economic power
denotes a company which is to have a significant influence on the national
economy and impedes the promotion of fair and free competition as a result of
situations such as (i) the aggregate size of business controlled by the holding com-
pany is excessively large and encompasses a significant number of areas, (ii) the
influence of those companies emanating from financing other companies’ busi-
ness is excessively large, and (iii) those companies are leading companies in their
respective fields of interrelated business (ibid., para. 3).
The FTC published guidelines on the concentration of economic power in
2002.¹⁹ For a company group of category (i) above, the threshold of the total
assets is set at 15 trillion yen, and the assets of member companies in more
than five areas at 300 billion yen each. Category (ii) is intended to prevent the
emergence of a financial holding company group which encompasses business
companies. Category (iii) is designed to prevent the emergence of the horizontal
keiretsu (business affiliation) system. Regarding financial holding companies, the
FTC published other guidelines.²⁰
Secondly, there is a limit for banks and insurance companies that hold
business companies’ shares. Banks are not allowed to hold or acquire more than
5 per cent of the vote in a company in Japan. The limit is 10 per cent for insurance
companies (Art. 11, para. 1).
On the other hand, financial holding companies under the Financial Holding
Company Law are exempted from this restriction. If a bank sets up a financial
holding company and becomes its subsidiary, this bank may hold up to 15 per cent
of the votes. The rationale of this exemption is questionable.²¹
Thirdly, the control of monopolistic situations was introduced by the 1977
amendment. This is expected to deal with the situation where one or a small
number of entrepreneurs dominate a particular market and inhibit free compe-
tition. This system is unique in the Anti-Monopoly Law in that it addresses the
structure of the market itself rather than the acts of entrepreneurs.
A situation is regarded as monopolistic: in a market whose volume of trade in
a product combined with similar products or volume of trade in service was over
50 billion yen in the previous year in which (i) the market share of an entrepre-
neur exceeds 50 per cent or the total share of two entrepreneurs exceeds 75 per
cent; (ii) entry into the market is extremely difficult; and (iii) there has been a
considerable increase in prices, or the decrease in prices has been small for a cer-
tain period, and the entrepreneur has either made considerable profits exceeding
¹⁹ <http://www.jftc.go.jp/e-page/legislation/ama/Company_Concentration.pdf> (in English).

²⁰ <http://www.jftc.go.jp/e-page/legislation/ama/Bankingstockholding.pdf> (in English).
²¹ Sato et al. (eds), supra, p. 234.
the norm set by a cabinet order, or has achieved extremely high sales or incurred
administration costs by the standard in the given market (Art. 2, para. 7).
If a monopolistic situation is established, the FTC is empowered to order
entrepreneurs to take measures to restore competition in the given market. These
include the partial transfer of business operations or assets, the sale of shares, a
change in business methods, the transfer of technology, and the opening up of
the distribution system.
There are guidelines by the FTC on this matter in which twenty-seven areas
of business, including beer, cigarettes, and colour photographic film, meet or are
likely to meet the above criteria are listed. The list is revised every two years.²²
It is fairly unlikely that measures to rectify the monopolistic situation will
actually be applied, especially the order to transfer part of the operations of a
business. The provision is expected to function as a deterrent, especially in rela-
tion to a concerted increase in prices led by a dominant entrepreneur. Its actual
implementation is considered to be the last resort.
(2) Prevention of market concentration—mergers and other issues

Companies are not allowed to acquire or own shares if this results in substantial
restraint of competition in a particular field of trade or by unfair means (Art. 10,
para. 1). The FTC published criteria for the application of this provision in 2004
(Guidelines on the Application of the Anti-Monopoly Law concerning Business
Combination) in 2004 (the last amendment in 2007).²³
In order to qualify as ‘substantial restraint’, the shareholder does not have to
be in a position to have effective control over the business activities of the other
company. It is sufficient that the company is able to influence the business activ-
ities of the other company to a significant extent. According to the Guidelines,
the shareholding does not have to be a majority, but can be as small as 25 per cent
if the company stands alone as a large shareholder. In an earlier case, a leading
musical instrument company acquired shares (24.5 per cent) of a rival company
through an intermediary with the intention of controlling its business activities.
The FTC found that this action substantially restricted competition in the mar-
ket of pianos and other products and ordered the company to dispose of shares.²⁴
Directors or employees of a company may not simultaneously hold a direct-
orship of another company if this would result in substantial restraint of com-
petition in a particular field of trade (Interlocking Directorate, Art. 13, para. 1).
A company is not allowed to force its competitor to accept its director or an
employee to become a director of the latter by resorting to unfair trade practices.
²² <http://www.jftc.go.jp/dk/dokusentekijotai.html>.
²³ <http://www.jftc.go.jp/e-page/legislation/ama/RevisedMergerGuidelines.pdf> (in English).
²⁴ Recommendation Decision of the FTC, 30 January 1957, Shinketsushū 8–51 (Nihon Musical
Instrument Manufacturing case).
Companies may not merge if this would result in a substantial restraint of

competition in a particular area of trade or if the merger is effected by unfair
means (Art. 15). Companies which intend to merge must notify this intention to
the FTC (Art. 15, para. 2). For mergers which are unlikely to affect competition,
the notification requirement was lifted by the 1998 amendment. Only if the gross
asset of one of the merging companies is above 10 billion yen, and if one of the
other company’s assets is one billion yen or more, must the companies notify the
FTC. The merger of a company with its subsidiary, or a merger between subsid-
iaries, does not require notification (Art. 15, para. 2).
Where notification is required, the merger cannot be effected until thirty days
after the notification is accepted by the FTC (ibid., para. 3). The FTC examines
the effect of the proposed merger on the market within this period. If the FTC
finds that the proposed merger will substantially restrain competition in a par-
ticular area of trade or is to be effected by unfair means, it recommends that the
parties refrain from the merger. If the FTC eventually finds that the merger is
against the Law, it may prohibit or impose conditions on the merger. If a merger
is carried out in breach of the Law, the FTC is empowered to bring the case to
court and invalidate the merger (Art. 18).
It is established practice that the companies that intend to merge unofficially
consult the FTC prior to the notification. The FTC examines the proposed mer-
ger plan and, if necessary, advises the parties to modify the plan, or to abandon
it. In recent years the FTC has started publishing a summary of its findings at the
consultation stage on a no-name basis.
The FTC received seventy-four merger notifications, nineteen company split
notifications, and 136 acquisition notifications in the Fiscal Year 2006. In the
thirty-nine merger cases, the amount involved was 10 billion or more but less
than 50 billion yen.²⁵
The definition of ‘substantial restraint on competition’ and the demarcation of
the ‘particular area of trade’ are given in the Guidelines on Business Combination
of 2004. The Guidelines distinguish between substantial restraint on competi-
tion by an action of a single entity and by parallel action in an oligopolistic mar-
ket. Concerning substantial restraint by an action of a single entity, if the merging
companies’ capacity of production or sale is much larger than their competitors’,
and if that company raises the price as a result, it is difficult for the competitors to
expand the production or sale without a price rise, or the purchasers may not be
able to switch to the competitors and the merging companies may be able to con-
trol the price rather freely, this constitutes substantial restraint on competition.
Factors taken into consideration are: (i) the merging companies’ market share
and rank, (ii) difference in market share, (iii) pressure for importation, and (iv) the
possibility of new entry into the given market.
²⁵ FTC Annual Report 2006, <http://www.jftc.go.jp/info/nenpou/h18/H18_top.html>.

The Guidelines point out that in an oligopolistic market, there are instances where
entrepreneurs become capable of foreseeing competitors’ behaviour with high accur-
acy, and it becomes beneficial for companies to take parallel action. Companies sub-
sequently raise prices. Thus, the merging companies and their competitors may be
able to control the price rather freely, and substantial restraint on competition may
emerge. In such cases, the above factors (i) to (iv) would be examined from the view-
point of whether parallel action with competitors will be facilitated. In addition, the
past state of competition in the market would be considered.²⁶
The only case of a merger that the FTC has handled by formal proceedings is
the merger of the Fuji Steel Corporation and the Yawata Steel Corporation. In
the mid-1960s the Japanese steel industry was dominated by six major compan-
ies. The first and the second largest companies decided to merge and accordingly
notified the FTC. The FTC found the merger to be impermissible, because it was
likely to restrain competition substantially, and recommended that the merger
should not go ahead. This was not accepted by the two companies. The FTC
applied to the Tokyo High Court for an injunction, which was granted. After
blocking the merger, the FTC initiated formal proceedings. Both companies,
realising that it was difficult to obtain approval for the merger as proposed, con-
ceded, and a consent decision was rendered.
The FTC ruled in this case that if, as a result of a merger, the structure of
the market changes to become less competitive, and an entrepreneur obtains a
dominant position within the market, it will constitute a substantial restraint
on competition. An entrepreneur is considered to hold a dominant position if it
monopolises the market, or is capable of influencing the price, quality or quantity,
or other conditions of the sale of products above a certain level, and thus deprives
the competitors of unrestrained business activities. In this particular case, the
FTC acknowledged in principle that the proposed merger would result in a sub-
stantial restraint on competition in the market of rails, tin plate, and other items.
The projected market share of the new company in certain areas of trade reached
almost 100 per cent. Nevertheless, the FTC ruled that if necessary measures to
prevent unreasonable restraints were adopted, the merger could go ahead. Thus,
various measures, such as the transfer of production facilities including steel mills
and technology, as well as the transfer of shares owned by those companies in a
tin-producing company to other smaller companies, were recommended.²⁷
The idea underlying this decision was that if an effective competitor is created
in the market, the proposed merger will not result in a substantial restraint on
competition. However, this approach has been criticised for failing to take into
account the effect of the emergence of the oligarchic structure of the market as a
result of the merger on competition. Even if there is an effective competitor in the
²⁶ Sato et al. (eds), supra, pp. 210–213.

²⁷ Consent Decision of the FTC, 30 October 1969 (Yawata/Fuji steel case), Shinketsugshū
16–46.
market, there is still a possibility that as a result of the high concentration in the
market, cartels can be more easily formed and a coordinated price rise may take
place. In other words, the FTC primarily focused on the prevention of the emer-
gence of a monopolistic company, and failed to take into account the change of
the market structure into an oligarchic one as a result of the merger.
The FTC changed its stance in 1998 now takes into consideration the pos-
sible changes to the market structure as a result of the merger. This approach was
inherited by the 2004 Guidelines. If the market structure is altered in a non-
competitive way by the merger, and if conditions that would allow the company
certain latitude to manipulate the price, quality, volume, and other conditions by
acting unilaterally or in coordination with other companies are likely to emerge,
then the effect of the merger may be a substantial restraint on competition in a
particular area of trade.
However, even after 1998, there have been cases where the FTC seems to have
resorted to the ‘effective competitor’ approach. In the merger of Japan Airlines
and Japan Air System in 2003, the largest company and the third largest com-
pany proposed to merge. Actually, there were only three sizeable companies in
the market, but the FTC allowed the merger to go ahead based upon an approach
similar to that in the Yawata/Fuji Steel case.²⁸
There are no fi xed numerical criteria in determining lawful and unlawful
mergers. However, the Guidelines refer to HHI (Herfindale Hirschman Index)
and indicate that in cases where the market share of the merged companies is less
than 10 per cent, or the HHI after the merger is less than 1,000 and the market
share of the merged company is 25 per cent or less, there would be no problem
under the Anti-Monopoly Law (safe harbour).
Previously, only mergers and acquisitions between Japanese companies were
regulated by the Anti-Monopoly Law. However, the 1998 amendment extended
such regulation to transactions outside Japan. First, if a foreign company with
total assets exceeding 10 billion yen intends to hold shares of a Japanese com-
pany with total assets exceeding one billion yen, or of a foreign company in Japan
with a turnover exceeding one billion yen, and, as a result, the foreign company
acquires over 10 per cent, 25 per cent, or 50 per cent of the interest, it should be
reported to the FTC.
Secondly, mergers between foreign companies are subject to notification
requirements, insofar as in the proposed merger, one of the parties has a turn-
over in Japan exceeding 10 billion yen, and another party has turnover in Japan
exceeding one billion yen. The parties may not proceed with the proposed merger
for thirty days while the FTC examines the notification.
Th irdly, the acquisition of business or fi xed assets of Japanese companies by
a foreign company outside Japan is also subject to notification requirements.
If a foreign company with total assets exceeding 10 billion yen acquires either
²⁸ Nikkei, 21 April 1999.

(i) an entire business from a company in Japan with total assets exceeding
one billion yen, (ii) a substantial part of a business or an entire or substantial
part of a business with more than one billion yen turnover from a company in
Japan, (iii) an entire business from a foreign company with a turnover in Japan
of more than one billion yen, or (iv) a substantial part of business or an entire
or substantial part of assets with turnover of more than one billion yen from a
foreign company, a notification requirement is again imposed.
5. Unreasonable Restraint of Trade
(1) Cartels—general
Unreasonable restraint of trade refers primarily to cartels. The Law defines
unreasonable restraint of trade as business activities by which any entrepreneur,
by contract, agreement, or other concerted actions with other entrepreneurs,
mutually restricts or conducts business activities so as to fi x, maintain, or increase
prices, or to limit production, technology, products, facilities, or customers or
suppliers, thereby causing, against the public interest, substantial restraint
of competition in any particular field of trade (Art. 2, para. 6). Unreasonable
restraint of trade is prohibited (Art. 3).
Cartels range from price cartels, supply (quota) cartels, and production-capacity
limitation cartels to cartels limiting customers, market division, joint sale, and
joint boycott. ‘Hard’ cartels such as the price cartel and market division are sub-
ject to a surcharge payment. In 2006, the FTC disposed of thirty price cartels, six
cases of bid-rigging, and two cases of other types of cartels.²⁹
Probably the most celebrated case of unreasonable restraint on trade in the
history of the Anti-Monopoly Law is the Petroleum Cartel case, which involved
a price cartel and a cartel on the adjustment of the amount of production at the
time of the oil crisis. In the price cartel, directors of fourteen oil companies agreed
to raise the price of oil products and enforced this agreement. In the production
adjustment cartel, the ‘supply and demand committee’ of the Japan Petroleum
Association allocated a quota of crude oil to companies.
Bid-rigging, which used to be common in some industries, also falls within this
category. Major bid-rigging was exposed in 2005. This involved construction of
bridges for the then Japan Highway Corporation (now privatised). 45 construc-
tion companies took part in the bid-rigging, which was arranged by directors of
the Highway Corporation. A cease and desist order was issued and the payment of
surcharge was ordered. Criminal prosecution was brought against the core member
companies of the cartel, company directors, and Highway Corporation officials.³⁰
²⁹ <http://www.jftc.go.jp/info/nenpou/h18/H18_top.html>.
³⁰ <http://www.jftc.go.jp/pressrelease/05.june/05062904.html>.
Unreasonable restraint of trade must involve collusion between entrepreneurs.

A coincidence of action is insufficient; a certain correspondence of will is needed.
In practice it is often difficult to prove the existence of an agreement. In an earlier
case, the FTC ruled that coincidental bidding prices were not sufficient to prove
the existence of concerted action, but in this particular case it acknowledged the
existence of such an action.³¹ In a more recent case, elevator maintenance and
service companies allegedly colluded in raising the prices of such services. There
was an extensive exchange of information and negotiation among the parties,
but the actual price increase was different from the allegedly agreed price in four
out of six companies. The FTC ruled that although there was suspicion that the
companies had colluded, there was no proof as to when and how the companies
developed a consensus on the tariff increase, and the content of the agreement.
Therefore, the existence of the cartel was denied.³²
The agreement to collude between the companies does not have to be explicit.
If one entrepreneur is aware of the actions of others and takes similar action
with the intention of aligning with the others, the existence of collusion is
acknowledged.
There was a case where eight companies were found to be involved in a
cartel. These companies jointly had an almost 100 per cent share of the mar-
ket. There was a trade association which had a committee comprising directors
of these companies and a sub-committee composed of general managers. The
actual negotiation took place at the meetings of the sub-committee. Seven of
the eight companies exchanged information and views at the meetings, and at
one meeting three leading companies announced their intention to raise prices,
while the remaining companies did not object. Accordingly, all eight companies
raised their prices. The FTC found this to be a cartel. Seven companies accepted
the recommendation of the FTC, while one company contested the case in the
High Court. The company argued that the companies were aware of the expected
action of other companies, but this company itself never approved of such con-
certed actions or intended to take part in the joint action. The court ruled that the
‘communication of intention’ required for a cartel does not have to be an explicit
agreement of a mutually binding nature. It would suffice if the parties mutually
acknowledged or foresaw the acts of the others to raise prices and aligned with the
others. If entrepreneurs exchanged information as to price increase and acted in
the same or a similar way, it can be presumed that there was ‘communication of
intention’.³³
There is a view that if there is concerted action, and if such action is inconceivable
without prior arrangement, the existence of such action itself is proof of mutual
agreement. However, that remains a minority view.
³¹ Hearing Decision of the FTC, 30 August 30, 1949, Shinketsushū 1–62 (Yuasa Woods case).
³² Hearing Decision of the FTC, July 28, 1994, Shinketsushū 41–46 (Mitsubishi Building
Technoservice case).
³³ Judgment of the Tokyo High Court, 25 September 1995, Hanta 906-136.
Unreasonable restraint of trade is unlawful when it results in substantial
restraint of competition in a particular area of trade. A ‘particular area of trade’
is determined first of all by the product or service in question. In the Petroleum
Cartel (production adjustment) case, the marketing of oil products in general
was regarded as a particular area of trade. The market can also be determined
by territory.³⁴ In a case involving film theatres, the FTC found a specific dis-
trict of Tokyo to be a ‘particular area of trade’.³⁵ Furthermore, the market can
be determined by the stage of trade or trade partners. In one case, the final stage
of distribution, i.e. ‘direct sale to major end-users’ was found to be included in a
particular area of trade.³⁶
As for the concept of ‘substantial restraint’, in the majority of cartels exposed
by the FTC, most of the companies in the market are involved. The average share
of the participants is said to be between 80 and 90 per cent.³⁷ In such cases, collu-
sion between the companies will more or less automatically result in a substantial
restraint on competition.
(2) Government-led cartels

In the past, particularly up to the 1970s, it was not uncommon for cartels to be
formed as a result of administrative guidance effected by ministries. In some areas
of industry, the adjustment of production volume and sales volume was effected
by administrative guidance, implemented by the concerted action of compan-
ies in the given area of industry. The FTC has long held the view that although
entrepreneurs followed administrative guidance, this does not in itself legitimate
illegal cartels.³⁸
A case in the early 1950s involved the price of soy sauce, then under govern-
ment control. The government agency in charge of prices discussed the termin-
ation of price control by the government with the trade association of soy sauce
producers and its four leading producers. The agency suggested a retail price,
but four companies proposed a higher price. Eventually they agreed on a price
in between the two in exchange for the abolition of price control. Later, the four
companies’ representatives met. A representative of Noda Soy Sauce, the leading
company, suggested the price and was followed by the other three.
At the FTC proceedings, Noda and the trade association argued that the
concerted action in question was effected under the de facto binding request of a
government agency. The FTC ruled that the FTC was the sole agency permitted,
subject to judicial review, to officially interpret and apply the Anti-Monopoly
Law, and that other governmental agencies were not entitled to freely interpret the
³⁴ Judgment of the Tokyo High Court, 19 September 1951, Kōmin 4-14-497.

³⁵ Recommendation Decision of the FTC, 8 January 1992, Shinketsushū 38–150 (Strech Film
cartel case).
³⁶ Sato et al., supra, pp. 37–38. ³⁷ FTC Annual Report, supra.
³⁸ <http://www.jftc.go.jp/e-page/legislation/ama/administrative.pdf> (in English).
Law. If a government agency effects administrative guidance based on erroneous

interpretation of law, entrepreneurs and trade associations have a duty to deter-
mine themselves what is lawful and what unlawful. Thus the FTC concluded
that the existence of administrative guidance did not affect the unlawfulness of
the cartel.³⁹
This problem was at issue again in the above-mentioned Petroleum Cartel
case. In the case involving production adjustment, the Petroleum Association
and 24 member companies plus one non-member company in 1972 and 1973
formed a cartel which restricted the volume of crude oil to be refined. The then
Ministry of International Trade and Industry, the agency in charge of imple-
menting the Law on Petroleum Businesses, was responsible for formulating and
implementing policy on the supply and disposal of crude oil. Control was to be
effected by restricting the supply of oil products by administrative guidance. In
fact, the production adjustment at issue in this case had been practised for many
years under the initiative of the Ministry. The Association determined the total
amount of crude oil to be refined and made corresponding allocations to mem-
ber companies. The FTC found this to be an illegal cartel and prosecuted the
Association and its executives.
The High Court ruled that the restriction on production was against the
Anti-Monopoly Law, but acquitted the defendants on the ground that they had
believed the act to be legal and had reasonable grounds for believing this. The
court referred (obiter) to the relationship between administrative guidance and
a cartel, and suggested that if the restraints on production had been a conse-
quence of the Ministry’s guidance, the Association and the companies should
not be held responsible. The court accepted that the administrative guidance in
this case exceeded the scope of power given to the Ministry, that it would almost
inevitably result in concerted actions by entrepreneurs, and that it was therefore
impermissible.⁴⁰
In the Petroleum price cartel case which occurred at the same time, 12 oil
companies and their directors were prosecuted for operating a price cartel. They
argued that the cartel had been effected as a result of administrative guidance.
It was established practice for the Ministry officials to require the submission
of documents from the companies to serve as a basis for price calculation, and
to give consent to price increases when they had been agreed. The Ministry, by
way of administrative guidance, urged the companies to obtain consent of the
Ministry for the maximum price increases. In this case, the Ministry gave con-
sent to the price. The companies mutually agreed that once the maximum price
was set, they should raise the price to the maximum.
³⁹ Hearing Decision of the FTC, 4 April 1952, Shinketushū 4-1 (Noda Soya Sauce case).
⁴⁰ Judgment of the Tokyo High Court, 26 September 1980, Kōkeishū 33-5-359 (Petroleum
(Production Adjustment) Cartel case).
However, the High Court found that the cartel was not an immediate result
of the administrative guidance. The court ruled that the defendants were aware
of the unlawfulness of the arrangement and found them guilty. On appeal, the
Supreme Court denied that the cartel was an outcome of administrative guid-
ance. The companies agreed to raise the price to the maximum which had been
approved by the Ministry, and this agreement was found to be a cartel.⁴¹
The Supreme Court stated obiter dicta that administrative guidance which
does not have an explicit legal basis can be justified if it is made in a reasonable
and socially acceptable way and does not contradict the fundamental purpose of
the Anti-Monopoly Law. However, it proceeded to rule that a price cartel which
technically contravenes the Anti-Monopoly Law should nevertheless not be con-
sidered illegal if it is formed as a consequence of lawful administrative guidance
and effected in compliance with the guidance.
Scholarly opinion varies on this issue. The majority believe such cartels to
be illegal, even though they were formed as a consequence of administrative
guidance. After all, administrative guidance is an act of an administrative agency
which does not have the power to give an authoritative interpretation of law. If
cartels were to be legitimised only because they had been based upon adminis-
trative guidance, it would mean that administrative agencies were free to create
exceptions to the Anti-Monopoly Law.⁴²
On the other hand, a minority view supports the position of the Supreme
Court. The FTC published its views on administrative guidance from the view-
point of the Anti-Monopoly Law in 1994. It maintains its long-held position that
the fact that a cartel was a result of administrative guidance does not make an
unlawful cartel lawful.⁴³
As can be seen in the Petroleum Cartel case and Japan Highway Corporation
case, cartels (namely bid-rigging) are sometimes arranged by local/central gov-
ernment officials. These government officials may now be prosecuted under the
Law on Elimination and Prevention of Involvement in Bid Rigging etc. and
Punishments for the Acts by Employees that Harm Fairness of Bidding and face
a maximum of five years’ imprisonment.⁴⁴
6. Unfair Trade Practices
(1) The concept

The Anti-Monopoly Law prohibits unfair trade practices (Art. 19, para. 9). An
unfair trade practice is defined by the Law as an act which falls within the category
⁴¹ Supra, Petroleum (Production Adjustment) Cartel case. See also Judgment of the Supreme
Court, 24 February 1984, Keishū 38-4-1287 (Petroleum (Price) Cartel case).
⁴² Sato et al.(eds), supra, pp. 57–58.
⁴³ <http://www.jftc.go.jp/e-page/legislation/ama/administrative.pdf> (in English)
⁴⁴ Law No.101, 2002, <http://www.jftc.go.jp/e-page/legislation/ama/aepibr.pdf> (in English).
of acts which are likely to impede fair competition and is designated as such by
the FTC. The Law itself lists (i) discrimination against other entrepreneurs; (ii)
unfair pricing; (iii) soliciting or forcing customers of competitors to deal with
oneself; (iv) trading under restrictive conditions; (v) trading by abusing its own
business position; (vi) obstructing business between a competitor and its trading
partner or unfairly soliciting, instigating, or forcing a shareholder or director of
a competitor to act against the interest of the company (Art. 2. para. 9). The FTC is
empowered by its quasi-legislative power to designate unfair trade practices. The
1982 notice designates 16 types of acts likely to inhibit fair competition as unfair
trade practices.⁴⁵
The common thread of those designated unfair trade practices is the possible
impediment to fair competition. This is explained by the FTC as the lack of one
or more of the following conditions: (i) free competition among entrepreneurs is
ensured (existence of competition); (ii) free competition exists in price, quality,
and service (methods of competition); and (iii) the entrepreneur is able to decide
on the deal and its conditions freely on its own initiative (free decision-making in
business).⁴⁶
Provisions on unfair trade practices are closely related to the protection of
consumers. In this regard, the Law against Unjust Premiums, Advertisement
and Labelling, the Law against Unfair Competition, and other laws also play
a significant role⁴⁷ Restrictions on unfair trade practice contribute to the pro-
tection of entrepreneurs in economically weak positions. Th is applies especially
to the prohibition of abuse of a dominant bargaining position. The Law on
the Prevention of Delay in Payment for Subcontracted Works is intended to
serve a similar purpose.⁴⁸ Incidentally, the Law against Unfair Competition
should not be confused with the Anti-Monopoly Law. Th is Law was originally
enacted in 1934 in relation to the ratification of the Hague Protocol of the Paris
Convention and was totally amended in 1993. The Law covers abuse of trade
names; trade marks; origin of products; misleading consumers as to the qual-
ity, content, etc. of the product; and dissemination of false information which
harms the credibility of competitors. Know-how is also protected by this Law
(see Chapter 15).
Traditionally, the necessity of controlling unfair trade practices is explained as
a set of preventive measures against private monopolisation. This is in a way justi-
fiable, considering the fact that the concept itself came from the US Clayton Act
and Sherman Act. However, with the 1991 Guidelines on the Business Practice
and Distribution System which, inter alia, addressed the problem of keiretsu
dealings by resorting to the concept of both unreasonable restraints and unfair
trade practices, the raison d’ être of the control of unfair trade practices seems to
⁴⁵ <http://www.jftc.go.jp/e-page/legislation/ama/unfairtradepractices.pdf> (in English)

⁴⁶ T. Hienuki in Atsuya (ed.), supra, p. 100. ⁴⁷ Laws No. 134, 1982 and No. 47, 1993.
⁴⁸ Law No. 120, 1956.
have changed to the elimination of exclusive trade practices and to ensuring the
openness and transparency of trade.⁴⁹
(2) Refusal to trade

The 1982 FTC Notice lists unreasonable refusal to trade and restrictions on
the volume or content of products or services as unfair practices. Causing other
entrepreneurs to refuse to deal with a third party also qualifies as refusal. Refusal
to deal can be effected by one entrepreneur or jointly by several entrepreneurs.
Although it is up to each entrepreneur to decide which partner to deal with, there
is a possibility that as a result of refusal, the opposite party will be forced to retire
from the market. There is also a possibility that entry of newcomers into the mar-
ket will be inhibited by such refusals.
The Guidelines on Business Practice and Distribution System address both
single and joint boycotts. A joint boycott, if effected by entrepreneurs or trade
associations to prevent new entry into the market, or to exclude an entrepreneur
from the market, is illegal per se. Since a joint boycott is a concerted action, it may
qualify as unfair restraint of trade (cartel) if the act meets other requirements—
namely that it results in substantial restraint on competition. If entry into the
market by the entrepreneur targeted by the joint boycott has become extremely
difficult, or the entrepreneur has been effectively excluded from the market, it is
likely that there has been substantial restraint on competition.
Collusion between wholesalers or retailers whereby a manufacturer is caused
to terminate the supply of goods to discount stores is not uncommon. In one case,
a trade association of home appliance manufacturers and sellers caused manufac-
turers to terminate the supply of products to wholesalers and retailers who sold
them at a price lower than the designated price. This was found to be an unfair
trade practice, since at that time vertical restraints were not regarded as an unrea-
sonable restraint of trade.⁵⁰ There may also be cases of boycott whereby manufac-
turers collude and refuse to deal with retailers that handle competing imported
goods. Even if such boycotts do not result in substantial restraint on competition
and do not qualify as an unreasonable restraint of trade, they may constitute an
unfair trade practice.
Refusal to trade by a single firm represents another problem. The FTC Notice
lists unreasonable refusal to deal by a single entrepreneur as an unfair trade prac-
tice. An entrepreneur may freely decide with whom to deal by taking into account
price, quality, and various other factors. A refusal to deal constitutes an unfair
trade practice only if it is effected in order to achieve a purpose—such as the
exclusion of a competitor, or to ensure the effectiveness of acts which is against
⁴⁹ Hienuki in Atsuya (ed.), supra, p. 99. FTC Japan Views, 1991, September, pp. 19–39.
⁵⁰ Recommendation Decision of the FTC, 17 October 1957, Shinketsushū 9–11.
the Anti-Monopoly Law, e.g. resale price maintenance.⁵¹ The Guidelines refer to
examples, such as an influential manufacturer in the market who causes whole-
salers and retailers not to deal with its competitor. Manufacturers often refuse to
deal with those who defy such arrangements. The guidelines generally regard a
manufacturer as influential if it has more than a 10 per cent share of the market or
is among the top three companies.
In one case, refusal by a grocery wholesaler to deal with a retailer was found to
impair fair competition, since there was no easily available alternative source of
supply of vegetables for this retailer.⁵² In another case, one of the major pharma-
ceutical companies banned its designated retailers from joining another pharma-
ceutical company’s sales network and advertising the competitor’s products. The
company refused to supply those retailers which defied the ban. The FTC found
this to be unfair trade practice.⁵³
A related matter is that of a selective distribution system. In such a system,
the supplier limits the distribution of goods to those wholesalers and retailers
who satisfy appropriate criteria and are thus allowed to join the system. This is,
in itself, not against the Anti-Monopoly Law. Only when the system is abused
to achieve goals which are not allowed by the Anti-Monopoly Law, for example.
resale price maintenance, does it become unlawful.
(3) Discriminatory pricing and other discrimination

The Notice also addresses unreasonable discrimination in pricing and other
matters. Discriminatory pricing means unjustly supplying or purchasing com-
modities or services at prices that discriminate between regions or parties. Again,
prices and other conditions of trade should be freely determined by entrepre-
neurs. However, there are cases where discriminatory treatment is used to impair
competition.
An example of price discrimination is a case where an influential entrepreneur
sells a product at a low price in areas with a view to excluding the competitor.⁵⁴ In
one case, a manufacturer of floorboards encouraged builders to join a cooperative
in order to maintain the retail price of floorboards. The builders who did not join
the cooperative were forced to buy the boards at a higher price. This was found to
be discriminatory by the FTC.⁵⁵
⁵¹ A. Yamada et al. (eds), Ryūtsū-torihiki-kankō ni kansuru Dokusen-kinshi-hō (Guideline of the

FTC on Business Practices and Distribution Systems) (Tokyo, 1991), p. 70.
⁵² Hearing Decision of the FTC, 19 April 1967, Shinketsushū 14–64 (Marugame Grocery case).
⁵³ Recommendation Decision of the FTC, 10 December 1955, Shinketsushū 7–99 (Second
Taishō Pharmaceutical case).
⁵⁴ Decision of the Tokyo High Court, 18 March 1957, Gyōshū 8-3-443 (Kitaguni News case).
⁵⁵ Recommendation Decision of the FTC, 2 February 1980, Shinketsushū 26–85 (Tokyo
Linoleum case).
Another example of discriminatory treatment is rebate. It is not uncommon
for manufacturers to pay a rebate to wholesalers and retailers depending on their
performance and other factors. Payment of a rebate is not in itself against the
Anti-Monopoly Law. The Guidelines, however, point out that if a rebate is used
as an incentive to impose restraints on resale price, sales territory, non-handling
of competitors’ products etc., it may violate the Anti-Monopoly Law.
The Notice also lists unjust pricing as an unfair trade practice. Naturally,
selling a product at a reduced price is not in itself against fair competition, but if
the price is unreasonably reduced in order to eliminate competitors, it is against
the Law. In practice, however, it is often difficult to demarcate the boundary
between reasonable and unreasonable price reduction. The Notice defines sales at
an unreasonably low retail price as a continuous supply of goods or services at a
price excessively below the cost incurred, or at an unreasonably low price, which
is likely to cause difficulties to the competitor’s business.
In one case, a newspaper company sold papers at 500 yen for a month’s sub-
scription in certain areas in order to attract new readers. Although the price was
nominally the same as cost, the FTC ruled that this cost was inconceivable with-
out a subsidy from a related company. On appeal, the Tokyo High Court ruled
that the price must be not just below market price, but below cost to be considered
an unreasonably low price. The court acknowledged that 500 yen was unfair, and
ordered the newspaper company not to sell the paper for less than 812 yen.⁵⁶
(4) Deceptive soliciting and unfair benefits

Deceptive soliciting and soliciting by unreasonable benefits are also unfair trade
practices. The Anti-Monopoly Law prohibits sales by deceptive advertisement or
labelling, as well as sales by excessive benefits. The Law against Unjust Premiums,
Advertisement, and Labelling is also applicable here. The FTC is empowered by
this Law to set the maximum benefits which can be offered, and to designate an
acceptable form of advertising (Art. 2).
Regarding unfair benefits, in the early 1990s, securities companies were found
to have compensated losses to favoured customers in order to keep their accounts.
This was found by the court to be soliciting customers by unreasonable benefits
in several cases.⁵⁷
(5) Restrictive dealings

The FTC Notice lists restrictive dealing as another unfair trade practice. The
Notice prohibits dealing with others by imposing a condition on the opposite
⁵⁶ Decision of the Tokyo High Court, 30 April 1975, Kōminshū 28-2-174. Consent Decision of
the FTC, 24 November 1977, Shinketsushū 24–50.
⁵⁷ Judgment of the Tokyo High Court, 26 September 1995, Hanji 1549-11 (Nomura Securities
case).
party not to deal with a competitor and thus reduce the business opportunity of
competitors. Such acts have been highlighted in recent years when the exclusive-
ness of the keiretsu relationship came to be criticised.
The Guidelines refer to examples such as an influential manufacturer in the
market asking influential parts and components suppliers not to supply the
manufacturer’s competitors, or asking distributors not to handle products of a
manufacturer who intends to enter the market.
In a typical case of exclusive dealing, a manufacturer of beds with a market
share of 40 per cent concluded an agreement with its designated distributors to
the effect that the distributors could not handle similar products of other com-
panies. Breach of this agreement would entail the loss of all privileges to the
distributor. The FTC found this to be an unfair trade practice.⁵⁸
Restrictions may be imposed on sales territories, products, choice of trading
partners, or resale prices. The Guidelines’ position is that some restrictions are
illegal per se, while other restrictions, depending on the position of the entrepre-
neur in the market, may result in exclusion of entry into the market, or impede
fair price competition, and may be unlawful. If an influential manufacturer in
the market restricts handling of competing products, and as a result new entrants
or existing competitors encounter difficulties in securing an alternative route of
distribution, this is illegal. There are also cases where a manufacturer imposes
restrictions on wholesalers supplying products to discount retailers. This is likely
to result in price maintenance and is an unfair trade practice.
In one case, a cooperative purchased fish, ham, and sausage from a wholesaler
at a discount price and sold them at a discount price to retailers who were mem-
bers of the cooperative. The producer asked the wholesaler not to supply products
to this cooperative. However, the wholesaler in question kept defying the request.
The producer obtained a written undertaking from the wholesaler that it would
not supply the cooperative. Nevertheless, the wholesaler continued supplying the
cooperative, and the producer informed the wholesaler that it would terminate
supply to the wholesaler. The producer proceeded to put a lot number on the
packet of the product so that it could trace the supply route to the cooperative.
Eventually, the wholesaler gave up supplying the cooperative. The FTC found
this to be unfair trade practice.⁵⁹
(6) Resale price maintenance

Resale price maintenance is a type of restrictive term, but is treated under a
separate heading in the Notice. In principle, prices should be determined by the
⁵⁸ Recommendation Decision of the FTC, 20 February 1976, Shinketsushū 22–127 (France Bed
case).
⁵⁹ Recommendation Decision of the FTC, 7 November 1966, Shinketsushū 12–146 (Nihon
Suisan case).
market, and resale price maintenance—restraint on the price set by the seller—is
therefore considered to be an unfair trade practice and illegal per se. The Anti-
Monopoly Law provides for some exceptions, but they do not apply when the
control of prices unreasonably infringes the interests of consumers (Art. 24-2).
Resale price maintenance occurs not only when the observance of the recom-
mended price asked by the manufacturer is secured by agreement between the
manufacturer and distributors, but also where the manufacturer takes measures
such as suggesting that distributors may suffer disadvantage by not observing the
price. Disadvantages include the termination of supply, a reduction of the volume
of supply, a reduction of rebates, etc. In some cases resale prices are monitored by
the manufacturer through test purchases, secret lot numbers, and inspection of
the records of distributors.
It should be noted that since the unlawfulness of resale price maintenance
is based primarily on its interference with free price setting, it will still consti-
tute an unfair trade practice if a manufacturer, instead of penalising a retailer
for not observing the recommended price, rewards it for observing that price.
In one case, a major cosmetics company refused the request by a large retailer to
arrange a sales campaign with a 10 per cent discount on the ‘recommended price’
by the cosmetics company. The company asked the retailer not to sell the prod-
ucts at a discount, and in exchange offered assistance in promoting sales of its
products at the retailer’s shop. The FTC ruled that this amounted to resale price
maintenance.⁶⁰
In a celebrated case, the same cosmetics company was sued by a distributor
when the company terminated its supply of products. The ground for the ter-
mination of supply was the non-observance by the distributor of the requirement
of face-to-face sale. The court of first instance ruled that this restriction on the
method of sale was without reasonable grounds and was in fact designed to main-
tain resale prices, and as such was illegal.⁶¹ However, the High Court reversed
the judgment and ruled that a requirement of face-to-face sale has a rationale, and
although the requirement in effect results in maintaining the resale price, there
was no proof that the restraint on the sales method was used as an instrument to
effect resale price maintenance.⁶²
(7) Abuse of dominant position

The Anti-Monopoly Law also prohibits the abuse of a dominant position as an
unfair trade practice. It is unlawful to force a trading partner to purchase goods
or services unrelated to the given transaction, to pay money or offer services or
⁶⁰ Consent decision of the FTC, 30 November 1995, Shinketsushū 42–97 (Shiseidō case).
⁶¹ Judgment of the Tokyo District Court, 18 July 1994, Hanji 1474–25 (Shiseidō case).
⁶² Judgment of the Tokyo High Court, 14 September 1994, Hanji 1507–43 (Shiseidō case).
other economic benefits, to impose on the other party disadvantageous terms of

trade, or to change those terms to the disadvantage of the other party. It is also
unlawful to give instructions to a trading partner regarding the appointment of
directors or make it subject to consent. These acts need to be unfair in light of
normal trade practices and must be committed through the abuse of a superior
position.
In one case, a major department store was found to have abused its domin-
ant position against its suppliers. Suppliers had been competing for a place in
this prestigious store. The department store virtually forced the suppliers
to purchase goods and services from the store and made them pay the cost of
refurbishment.⁶³
In another case, a bank made it a condition of a loan that the managing dir-
ector and executive directors of the borrower be selected on its instructions. This
was found to be abuse of its dominant position.⁶⁴ Another example involved a
bank’s request for a company, which sought a loan, to borrow more money than
it needed. The excess amount was to be deposited at the bank, enabling the bank
to gain interest unfairly on the loan. This was also found to be an unfair trade
practice.⁶⁵
It is important to note that unlike in EU Law, ‘dominant position’ does not
only mean a dominant or monopolistic status in the market; it is sufficient if
the party in question is in a position superior to that of the opposite party. The
concept is applied in cases where (i) the market is oligarchic and the opposite
party is a medium or small company which cannot refuse the terms imposed by
a major company, (ii) an entrepreneur is forced to arrange a special production
system for the other party, (iii) the market is highly stratified in a keiretsu system,
(iv) because of the nature of the products or services, it is impossible to switch
trading partners, or (v) the entrepreneur in question is influential in the market
and the opposite party conducts business only by continuing transactions with
this entrepreneur.⁶⁶
Thus, the prohibition of the abuse of a dominant position is intended to
ensure orderly competition, and therefore is applicable in situations where
the act involves a large number of counter-parties, is effected in a systematic/
institutional manner, the harm done is significant, or may affect others, and in
cases that involve a single counter-party, the harm done is significant, or may
affect others.⁶⁷
⁶³ Consent Decision of the FTC, 17 June 1982, Shinketsushū 29–31 (Mitsukoshi Department
Store case).
⁶⁴ Recommendation Decision of the FTC, 6 November 1953, Shinketsushū 5–61 (Industrial
Bank of Japan case).
⁶⁵ Judgment of the Supreme Court, 20 June 1977, Minshū 31-4-449 (Gifu Credit Bank case).
⁶⁶ Tanihara in supra; Hienuki in Atsuya (ed.), supra, pp. 208–212.
⁶⁷ Sato et al. (eds), supra, pp. 177–179.
(8) Sole distributorship and parallel imports

It is normal practice for a foreign manufacturer to conclude a sole distributor-
ship (agency) agreement with a Japanese company. It has an economic rationale
and is not in itself against the Anti-Monopoly Law, as is selective distribution.
However, if the sole distributor is a company which handles competing goods in
Japan and is also a sole distributor of this product, there is a possibility that the
Japanese company may come to control the market, depending on its position in
the market as well as the position of the foreign manufacturer, and the level of
competition in the market.
The Guidelines take the position that if an entrepreneur who is to become a sole
distributor is manufacturing or selling goods identical in kind to those it is to import
and sell, and its market share is 10 per cent or more and amongst the top three in
the market, then a sole distributor agreement on this product may impede compe-
tition. If the entrepreneur who is to be the sole agent has more than 25 per cent of
the market share, it is highly likely to affect competition. If there is a likelihood of
impediment to competition, such an agreement constitutes unfair trade practice. In
addition, if the manufacturer imposes restrictions on the distributor, for example,
not to handle competing goods, or to sell the product at a certain price, such an act
qualifies as unfair trade practice. If the distributorship agreement contains restric-
tions on resale price, the handling of competing products, sales territory, etc., it is
against the Anti-Monopoly Law on general grounds.
Parallel imports have become an issue in recent years. There have been cases
where the manufacturer–exporter and/or sole agents have attempted to prevent
parallel imports. If a foreign manufacturer or a sole distributor obstructs, in one
way or another, the import of the products other than through the sole distribu-
tor, this may comprise unfair trade practice as restrictive terms, or obstruction
of competitor’s business insofar as they are genuine products. The view of the
FTC in the Guidelines is that parallel imports enhance competition, and if par-
allel imports are obstructed in order to maintain prices, this is against the Anti-
Monopoly Law. If a sole distributor requests the foreign manufacturer to block
supply to parallel importers, or impose restrictions on retailers not to handle
goods imported through parallel import for the purpose of maintaining the price,
this is also considered to be unfair trade practice (obstruction of a competitor’s
business).
In one case, the sole distributor of Herend, a manufacturer of Hungarian por-
celain, became concerned about its products being imported by other companies
through Herend’s sole distributors in third countries and sold at a much lower
price in Japan, and asked Herend to block the supply. The FTC ruled that this
sole agent unreasonably obstructed the trade between Japanese importers and
overseas distributors of Herend products.⁶⁸
⁶⁸ Recommendation Decision of the FTC, 22 March 1996, Shinketsushū 42–195.

A related problem is whether parallel imports can be blocked by resorting to

intellectual property rights. In a leading case on trademarks, the parallel import
of Parker fountain pens was at issue. Parker was registered as a trademark in
Japan. The company sued a parallel importer for trademark infringement. The
court ruled that the importation of genuine products does not affect the function
of the trademark to identify the product and to ensure its quality, and was not an
infringement. As regards patent, a German company which produces and sells
tyre wheels sued a parallel importer in Japan for patent infringement. The prod-
uct was patented in Germany and Japan. While the court of first instance found
infringement, on appeal the court ruled that the company had exhausted its rights
once it placed the product on the market in Germany. The Supreme Court ruled
that if a patent holder had sold the product overseas, unless the patent holder and
the purchaser agreed on the restriction of the territory in which the product could
be used and clearly publicised this fact, parallel import could not be prevented.⁶⁹
7. Problems of Keiretsu
The strengthening of control over unfair trade practices gained momentum in

the 1989/1990 US–Japan SII Talks; it was thought to be vital to make the entry
of foreign companies into the Japanese market easier. Amongst other issues, the
practice of company keiretsu was said to be exclusive and unfair. Keiretsu are
companies linked together by continuous business relations. The term is still not
precisely defined, but it was generally acknowledged that there are three types of
keiretsu: suppliers’ keiretsu, distribution keiretsu, and company groups.⁷⁰
A typical example of suppliers’ keiretsu can be found in the car and home appli-
ances industry, in which major manufacturers have a network of suppliers of
parts and components. In order to maintain the quality and timing of supply,
most of these suppliers service only one manufacturer. These suppliers are mostly
small and medium-sized companies with the exception of some large suppliers
for car manufacturers, and are usually not subsidiaries of the manufacturers. The
manufacturer often holds a minority share in the supplier companies and sends
in directors.
This arrangement has the advantage that manufacturers can maintain a
constant supply of high-quality parts and components tailor-made to their
needs. In addition, Japanese companies have adopted the ‘just in time’ delivery
system in order to minimise the stock of parts and components held. Keiretsu
was thought to be the most suitable way to meet the requirements for this sys-
tem. On the other hand, it was argued that this whole network of suppliers has
worked against the entry of foreign suppliers. Also the relationship between
⁶⁹ Judgment of the Supreme Court, 1 July 1997, NBL No. 621 (BBS case).
⁷⁰ K. Miyashita and D. Russel, Inside Japan’s Keiretsu (Tokyo, 1996).
these powerful manufacturers and suppliers can be a problem under the Anti-
Monopoly Law, since there might be abuses of a dominant bargaining position
by manufacturers.
As regards distribution keiretsu, again, the car industry and home appliances
industry serve as examples. Manufacturers have developed a network of sales
companies and dealers in order to maximise the sale of their products. These sales
companies and dealers would sign an exclusive agreement with the manufacturer
not to deal with other manufacturers’ products. There was a practice of prior con-
sultation if a sales company or a dealer intended to deal in another manufacturer’s
products. Therefore, if foreign manufacturers entered the Japanese market, they
were unable to use the existing sales network and had to develop their own from
scratch. Since the early 1980s such exclusive arrangements have been treated by
the FTC as contrary to the Anti-Monopoly Law. On the other hand, it is reported
that some car dealers have started to deal with other manufacturers’ cars.
As with suppliers’ keiretsu, this system, despite some criticisms, has advantages.
However, it is problematic not only from the viewpoint of foreign companies, but
also for Japanese consumers. For example, in the home appliances market, large
discount shops have mushroomed. Some manufacturers have reacted by putting
pressure on the wholesale traders not to supply products to these discount shops.
Employees of the manufacturer would constantly monitor prices, and when they
found a large discount they would trace the supply route and block it. Such acts are
against Anti-Monopoly Law.
The third type of keiretsu are company groups. There are six major company
groups, some of which originated from the pre-war zaibatsu. Groups of compan-
ies usually include banks and a trading house in addition to various companies
involved in different areas of industry. They are, to a certain extent, linked by
cross shareholding and directorship. These company groups were criticised at the
SII Talks for being involved in exclusive practices. In fact, a recent survey dem-
onstrates that these groups are not as exclusive as they seem. Around 20 per cent
of the shares of a group company are held within the group. These companies
hold shares mutually, but most of their stable shareholders are outside the group.
Trade is conducted primarily with companies outside the group. These groups
are no more than a loose affiliation of companies on an equal footing and do
not represent a threat to free and fair competition. The FTC regularly conducts
a survey of the state of such company groups. The 7th Survey of major company
groups by the FTC found that the status of six major corporate groups in the
Japanese economy has diminished. According to the report, ‘by and large, bonds
between these companies such as capital, personnel and business relations that
bring affiliated companies together have been weakening’.⁷¹
⁷¹ FTC, Dai 7-Kai Rokudai Kigyō-Shūdan no Genjō (The 7th Survey of the Six Major Company
Groups), <http://www.jftc.go.jp/e-page/reports/survey/2001/010518corporategroup.pdf>.
The FTC addressed the problem of keiretsu in the Guideline on Distribution

Systems and Business Practices. The Guidelines take the position that the keiretsu
system is not against competition per se. It has some economic rationale, for
instance in the pursuit of efficiency and quality. If a continuous trade relationship
is formed through the free choice of the company, based upon commercial con-
siderations such as price, quality, service, etc., such a relationship is not against
the Anti-Monopoly Law. However, there are certain keiretsu practices which
impede fair competition. The Guidelines are intended to strengthen the enforce-
ment of the Anti-Monopoly Law in such areas.
8. Application of the Anti-Monopoly Law

on International Transactions
The Anti-Monopoly Law prohibits entrepreneurs from entering into an inter-
national agreement or contract which contains elements of unreasonable restraint
on trade or unfair trade practice (Art. 6). The FTC is empowered to order entre-
preneurs to rescind such agreements or contracts. Entrepreneurs who entered
into an international agreement or contract within the category designated by the
FTC were in the past required to file a report with the FTC and submit a copy of
the agreement or contract. This requirement was dropped altogether in 1997.
The Anti-Monopoly Law applies to acts which affect competition in export
from or import into Japan.⁷² In one case, four companies which dominate the
synthetic ash market agreed on joint importation and a quota system in order to
prevent importation of inexpensive natural soda ash from the United States. All
natural soda was imported via four trading houses. A joint storage facility was
built. This was the sole storage facility of this kind in Japan and was used solely
for soda imported for the use of the four companies. The FTC found that the four
companies, by determining the amount of importation, allocation of imported
products, and the route of importation, substantially restrained competition in
the importation of soda ash into Japan.⁷³
On the other hand, this provision does not mean that the Anti-Monopoly Law
can be applied extra-territorially. Japanese law acknowledges extra-territorial
application only when there is an explicit provision: there is no such provision
in this Law. However, there is an influential view that Article 6 has a similar
effect to extraterritorial application. Furthermore, if an international agreement
or contract involving unfair restraint of trade or unfair trade practices concluded
abroad has an effect on the Japanese market, the Japanese Anti-Monopoly Law
⁷² S. Negishi and M. Funada, Dokusen-kinshi-hő Gaisetsu (Outline of the Anti-Monopoly Law),

3rd edn (Tokyo 2006), pp. 160–162.
⁷³ Recommendation Decision of the FTC, 31 March 1983, Shinketsushū 29–104 (Soda Ash
Import Cartel case).
can be applied to such acts insofar as the foreign party has some presence in Japan
where documents can be served.⁷⁴
In 1972 the FTC took measures against six international cartels, five involving
synthetic textiles. This was preceded by an action of the German Cartel Office
which imposed administrative fines on the German companies which took part
in the cartel. In one of those cases, three major Japanese producers of rayon (who
together controlled an almost 100 per cent share of the domestic market) reached
an agreement with the then West German companies not to export goods to the
other’s ‘traditional markets’ and mutually limited the amount of exports to their
‘common markets’, i.e. markets other than the respective traditional market and
the United States. They also agreed to set minimum sales prices for each country
in the ‘common markets’. Meetings took place in Japan and Europe. The FTC
found that this agreement substantially restricted competition in the export of
rayon by restricting the territory, volume of export, and price in the ‘common
market’. On the ground of Article 6, the FTC ordered the companies to rescind
the agreement.⁷⁵
It should be noted that the FTC decision did not address the foreign parties,
but the Japanese parties only. Some commentators are of the view that if these
German companies had some presence in Japan, they too should be made parties
to the proceedings. Another problem in this decision is that the market which has
been affected by the cartel was not specified. The FTC referred to the ‘common
market’ only. However, if the affected market was that of a foreign country, the
Japanese Anti-Monopoly Law may not have been applied. Perhaps the FTC
should have focused on the effect of this cartel on the importation of rayon into
Japan.⁷⁶
In the above case Japanese companies had formed a cartel under the Law on
Export-Import Transactions.⁷⁷ This Law provides an exemption to the Anti-
Monopoly Law: it allows exporters to operate a cartel after notifying the Minister
of Trade and Industry. The Minister may order a change, or ban the agreement
if it is against a treaty or harms the interests of entrepreneurs at the place of
consignment and seriously harms the credibility of Japanese exporters. The FTC
took the view that if the export cartel based on this Law is in reality an inter-
national cartel, the export cartel does not qualify for exemption and the entire
agreement, including the international one, is illegal.⁷⁸
In another of the five cases exposed in 1972, a German trade association
required five Japanese exporters of acrylic thread to cap the export to Germany.
⁷⁴ A. Shimizu in Atsuya et al. (eds), supra, pp. 245–246.

⁷⁵ Recommendation Decision of the FTC, 27 December 1972, Shinketsushu 19–124
(International Rayon Cartel case).
⁷⁶ M. Matsushita in Dokusen-kinshi-hō Hanrei Hyakusen (One Hundred Selected Cases on Anti-
Monopoly Law) 4th edn, special issue of Jurist (Tokyo) p. 75.
⁷⁷ Law No. 299, 1952.
⁷⁸ Matsushita, supra.
Japanese exporters got together and agreed on the capping. In this case the FTC
did not refer to the German association in the decision. Instead, it ruled that
the five companies restrained competition in the area of export of acrylic thread
by agreeing on the maximum volume of export to Germany.⁷⁹ This was ques-
tionable since there was no formal agreement between the German association
and Japanese companies which qualified as a cartel. In addition, whether the
agreement reached by the five companies was a cartel in a strict sense or not was
questionable, since there seemed to be no mutual obligation.
In recent years in Europe and the United States, the participation of Japanese
companies in an international cartel has been exposed. For example, in the cel-
ebrated EU Vitamin Cartel case, several Japanese companies were involved. In
2005, the Japanese FTC exposed an international cartel involving Japanese and
European chemical companies, similar to the one exposed in 1975. In 2007, the
FTC issued a cease and desist order against Japanese, Italian, French, and British
companies involving an agreement regarding the supply of marine hose pipe to a
Japanese user. These companies had agreed to let the company that has the main
office in the given country be the successful bidder for the supply of the product
to the users in that country. They were found to have substantially restrained
competition in the Japanese market of marine hose pipe.⁸⁰ In relation to this
cartel, the US Justice Department arrested eight company executives, including
one from a Japanese company.⁸¹
There have been several cases concerning international agreements and
contracts which comprise unfair trade practice. In one case, a Danish pharma-
ceutical company Novo Industry concluded an agreement with the Amano
Pharmaceutical Company in Japan to supply biotechnology products. The agree-
ment contained provisions which prohibited Amano from selling or producing
products similar to the Novo product for three years after the expiration of the
agreement and from handling competing products in Japan and other Asian mar-
kets, and additionally included a provision on resale price maintenance. After its
expiration, Amano belatedly notified this agreement to the FTC which found
the restrictions to be an unfair trade practice. The FTC recommended Amano to
annul the relevant provisions.⁸²
In this case Novo was not made a party to the FTC proceedings. Novo therefore
appealed against the FTC decision to the Tokyo High Court and subsequently to
the Supreme Court, arguing that since the outcome of the proceedings affected
their rights they should have been granted standing in the FTC proceedings. The
claim was rejected by both the High Court and the Supreme Court.⁸³ In a way
⁷⁹ Recommendation Decision of the FTC, 27 December 1972, Shinketsushū 19–140.

⁸⁰ Annual Report of the FTC, 2007 <http://www.jftc.go.jp/info/nenpou/h19/19nenpo4.pdf>.
⁸¹ <http://www.usdoj.gov/atr/public/press_releases/2007/223037.htm>.
⁸² Recommendation Decision of the FTC, 12 January 1970, Shinketsushū 16–134 (Amano
Pharmaceutical case).
⁸³ Judgment of the Supreme Court, 28 November 1975, Minshū 29-10-1592.
Article 6 is useful, since it enables the FTC to take measures without reaching the
foreign party which is beyond the jurisdiction.
Several years later, in another case involving a Japanese company and a
US company, the US party imposed onerous terms, including a prohibition
on handling competing products and an extensive obligation to disclose
improved technology. In this case the US company was made a party to FTC
proceedings.⁸⁴
9. Procedures and Sanctions
(1) An overview
The Anti-Monopoly Law empowers the FTC to take measures such as issuing
cease and desist orders and in certain categories of cases, orders to pay surcharges.
In addition criminal sanctions are available.
The FTC is empowered to order entrepreneurs to cease and desist breaches of
the Anti-Monopoly Law and to take necessary measures to eliminate such viola-
tions (Arts 7, 20, and 49). Such measures include partial transfers of business
operations, transfers of shares, termination of merger plans, deletion of clauses
from contracts, rescission of agreements, and dissolution of cartels. In urgent
Table 14.2 Outcomes of cases examined by the Fair Trade Commission
2003 2004 2005 2006 2007
Cases 161 139 107 159 160

disposed of
Recommendation / 25 35 19 12 22
cease and desist order
Surcharge order w/o 0 0 0 1 2
recommendation /
cease and desist order
Caution/warning 88 69 54 83 98
Proceedings 10 10 16 35 20
terminated
Surcharge Number of cases 24 26 20 13 20
orders
Amount of surcharge 386,712 1,115,029 1,887,014 926,367 1,129,686
(ten thousand yen)
Criminal 1 0 2 2 1
charges
Source: FTC, Heisei 19-nen Nenji-Hōkoku (Annual Report of the FTC 2007), <http://www.jftc.go.jp/info/
nenpou/h19/19nenpo.html>.
⁸⁴ Decision of the FTC to terminate the proceedings, 26 October 1981, Shinketsushū 28–79.
cases, the FTC may apply to the Tokyo High Court for an emergency injunction
(Art. 70-13).
Before 1990, the FTC resorted mostly to informal measures such as warnings,
but in recent years it has come to rely increasingly on formal measures.
(2) The procedure

Any person who considers that there was a violation of the Anti-Monopoly Law
may report it to the FTC and request that appropriate action be taken. The FTC’s
Investigation Department is required to conduct an investigation on the receipt
of such a report. The FTC may also initiate investigation ex officio. In the course
of an investigation, the FTC may require persons involved to appear for question-
ing, invite experts to give evidence, and request the submission of accounting and
other documents. The FTC may enter any place of business or other premises
in order to investigate the state of business and assets, and inspect accounting
records (Art. 47, para. 1). Those who do not comply with a request of the FTC are
subject to a maximum of one year’s imprisonment or fines up to a maximum of
3,000,000 yen (Art. 94).
If a violation is found as a result of an investigation, the FTC may issue a
cease and desist order and surcharge order, but before issuing such orders, must
give an opportunity to the entities and individuals to whom these orders are to
be addressed to give an opinion and present evidence (Art. 49, para. 5). These
entities and individuals may appoint legal counsel (ibid., para. 49).
Following this procedure, the FTC issues a cease and desist order, and if
applicable, a surcharge payment order. These orders can be contested in a hear-
ing procedure conducted by the FTC by filing a complaint within sixty days of
receiving these orders (ibid., para. 6 and Art. 50, para. 4).
The hearing procedure was substantially revamped as a result of the 2005
amendment. Previously, a hearing procedure preceded the cease and desist order,
but now, the hearing is characterised as a review of the order which has already
been issued.
Hearings can be conducted either by the Commission itself or by adminis-
trative law judges (shinpan-kan). Most cases are handled by administrative law
judges (normally by three of them). The hearing is conducted on an adversarial
basis in public unless otherwise required by public interest or the necessity of
protecting business secrets (Art. 61, para. 1). An official from the investigation
department is entrusted with the task of pursuing the charge brought against
the respondent. The respondent has a right to a defence including the right to be
represented by legal counsel (attorney) (Art. 59). There is a set of procedural rules
for the hearing (shinpan kisoku) adopted by the FTC.
Administrative judges do not have the power to render a final decision. When
the hearing is completed, the hearing commissioner drafts a decision, and sends
it to the Commission and a copy to the respondent and the investigation officer.
They are entitled to file an objection to the draft. The respondent is also entitled
to present their views direct to the FTC (Art. 63).
The chairman and the commissioners of the FTC jointly adopt the decision (Art.
69). The FTC may dismiss the claim of the respondent, or, if it finds the claim valid,
it may rescind all or part of the original order, or alter it (Art. 66, para. 3).
(3) Surcharges
The system of surcharges was introduced in 1977 for cartels affecting prices in
order to ensure the effectiveness of the prohibition on cartels by making those
involved in cartels surrender the profit from the cartel. This system has been
expanded and reinforced over the years.
As a result of the 2005 amendments, the scope of acts subject to the payment of
surcharges was expanded. In addition to cartels involving price (including cartels
regarding the purchase of goods), substantial restraints on the volume of supply
or purchase, market share, or the counter-party of trade in goods or services that
affect the price, are subject to a surcharge payment. The same applies to private
monopolisation that controls another entity’s business activities (Art. 7-2, paras 1
and 2 and Art. 8-3).
The amount of surcharge has been increased by successive amendments to the
Anti-Monopoly Law. It is calculated on the basis of a fixed percentage of the amount
of turnover or purchase during the period in which the cartel or private monopolisa-
tion was in operation. The maximum period is three years. The percentage differs,
depending on whether the company in question is a large company or a small or
medium-sized company, and also on whether it operates in wholesale, retail, or other
areas. For large companies in areas other than retail or wholesale, the percentage is
set at 10 per cent (for retailers, 3 per cent, and for wholesalers, 2 per cent).
If the company terminated the cartel more than one month before the inspec-
tion for criminal prosecution or before notice of the cease and desist order, the
amount of surcharge may be reduced by up to 20 per cent. On the other hand, in
cartels and private monopolisation, if the company has been repeatedly in breach
within the last 10 years, the amount of surcharge can be raised by 50 per cent.
The leniency system for cartels was also introduced in Japan in 2005. Decisions
of the FTC are subject to judicial review. The Tokyo High Court has exclusive
jurisdiction over such cases.
When the court reviews a decision of the FTC, if it finds that the facts as deter-
mined by the Commission are based on substantial evidence, then it is bound by
these facts (Art. 80, para. 1). The court merely reviews the case on points of law.
(4) Criminal sanctions

Criminal penalties are available, inter alia, in private monopolisation and for
unfair restraints on trade, but not for unfair trade practices. The maximum
penalty is three years’ imprisonment or a five million yen fine (Art. 89). If a
representative of a juridical person, an agent, employee etc. of a physical or jur-
idical person has effected private monopolisation or unfair restraint of trade in
the course of business or in relation to its assets, this physical or juridical person
has a maximum fine of 500 million yen imposed upon them as vicarious liabil-
ity (Art. 95). If a representative of a company failed to take preventive meas-
ures knowing that a violation of the Anti-Monopoly Law was planned, or to take
corrective measures after he found that such a violation had taken place, this rep-
resentative may also be fined (Art. 95-2). For juridical persons, if they are ordered
to pay surcharges, half the amount of fines imposed may be deducted from the
amount of surcharge. This is in response to the criticism by companies that the
combined system of a fine and surcharges constitutes double jeopardy.
While earlier, the FTC seldom resorted to criminal penalties, since 1990 it has
become more active in resorting to criminal sanctions. The position of the FTC
is that if either (i) the act is in serious violation of the Anti-Monopoly Law and
has a widespread impact on society as a whole; or (ii) the act was committed by
firms or industries that have repeatedly been in breach of law, or have failed to
take appropriate measures to eliminate such acts, and where administrative sanc-
tions are regarded as insufficient to meet the goals of the Anti-Monopoly Law,
then criminal sanctions will be imposed.⁸⁵ This does not apply when the leniency
system is applicable.
The FTC does not have the power of prosecution. Instead, it has an exclusive
power to file a complaint with the Public Prosecutor’s Office (Art. 96). Designated
officers of the FTC are now given the power of criminal investigation (Arts 101
and 102).
(5) Remedies available to individuals

The Law also provides that an entrepreneur who was involved in private
monopolisation, unreasonable restraint of trade, or unfair trade practice is liable
for damages. For instance, where consumers have purchased goods or services at
a high price maintained by a cartel, they are entitled to claim damages. This is an
absolute liability—entrepreneurs are not exempted from liability by the absence
of intention or negligence (Art. 25). This provision in the Anti-Monopoly Law is
considered to be a special arrangement in relation to tort law, which is based on
the fault principle. Claims on the basis of this provision can only be made after
a decision has been rendered by the FTC as to the legality of the entrepreneur’s
actions and has taken effect. The Tokyo High Court has exclusive jurisdiction
over such claims for damages.
⁸⁵ FTC, The Policy regarding Criminal Accusation of Off ences against the Anti-Monopoly Law,
1990, as amended. <http:www.jftc.go.jp/pressrelease/05.october/051006tenpu01.pdf>
Unlike in the United States, where a body of case law developed out of
litigation brought by citizens, in Japan litigation for damages involving breach
of the Anti-Monopoly Law has been rare. There are various reasons for this. First,
such claims presuppose a decision of the FTC in force, confirming a violation
of the Anti-Monopoly Law. However, since the FTC relied more upon infor-
mal measures in the past, a decision was not necessarily available. Secondly, it is
always difficult to prove causation between the violation of the Anti-Monopoly
Law and the loss. The scope of loss is also often difficult to prove. Thirdly, infor-
mation and evidence concerning the violation are usually not in the hands of the
plaintiff.
In a celebrated case, a group of consumers filed a claim for damages for the
loss caused by a cartel of petroleum companies during the oil crisis on the basis
of general tort liability. While the lower courts upheld the claim, the Supreme
Court reversed the judgment on the ground that there was insufficient proof of
the causal links between the cartel and the increase in prices.⁸⁶ The Supreme
Court also dismissed the claim in a similar case where the plaintiffs resorted to
Article 25 of the Anti-Monopoly Law.⁸⁷ There was a public outcry against these
judgments, and the FTC started reviewing the system in order to make litigation
easier. This issue was also raised in the Structural Impediments Initiatives Talks.
There was a proposal by the United States to introduce punitive damages, but this
was turned down as being alien to the Japanese criminal and civil law system.
As a result of the amendment of 2000, remedies available to individuals were
expanded and a system of injunctions was introduced. Concerning civil remed-
ies, the scope of the application of absolute liability was expanded to international
agreements in breach of the Anti-Monopoly Law. If a cease and desist order or a
surcharge payment order is issued, it is possible to proceed with a court action
for damages. There have been cases recently where regional governments took an
action against participants of bid-rigging, subrogating the local government. In
some cases, the court acknowledged the claim of the plaintiffs.⁸⁸
A system of injunctions was made available to those whose interests had
been harmed or are likely to be harmed by unfair trade practices and who suffer
substantial damage or are likely to suffer such damage (Art. 24). However, no
injunction has so far been granted.
⁸⁶ Judgment of the Supreme Court, 8 December 1989, Minshū 43-11-1259 (Tsuruoka Paraffin
Oil case).
⁸⁷ Judgment of the Supreme Court, 2 July 1987, Minsū vol. 41, No. 5, p. 785.
⁸⁸ <http://www.jftc.go.jp/info/nenpou/h18/H18_top.html>.
15
Intellectual Property Law
1. ‘An Intellectual Property Based Nation’
In 2002, concerned by the declining international competitiveness of the

economy, the government set up the Intellectual Property Strategic Forum. The
intention was to transform Japan into an ‘intellectual property based nation’
in order to reinvigorate the economy and regain international competitiveness.
Following the Programme for the Intellectual Property Strategy, a law which set
the basic strategy—the Basic Law on Intellectual Property—was enacted in the
same year. The Law, inter alia, listed as policy goals expedition of the applica-
tion procedure for patents; facilitation of intellectual property related litigation
with closer involvement of experts; and strengthening the protection of intellec-
tual property rights against infringements. In 2003, the first annual Intellectual
Property Promotion Programme was adopted.¹ Since then, most laws in the
area of intellectual property were amended in line with the proposals in this
Programme. Naturally, this policy of the government facilitated the reform, but
the real driving force behind it was the rapid development and spread of informa-
tion technology, e.g. the Internet.
Probably the first and foremost achievement since then has been the creation
of the Intellectual High Court in 2005 (see Chapter 3). The time needed for set-
tling disputes involving intellectual property has been substantially reduced. The
length of time needed for the procedure contesting the decision of the Patent
Office in court has fallen from an average of 21.4 months in 1994 to 9.4 months
in 2005.² The court has quickly established its authority in this field.
Secondly, the examination of patent application has been streamlined and
expedited. The previous notoriously slow patent procedure has become much
quicker.
¹ <http://www.kantei.go.jp/foreign/policy/titeki/kettei/040527_e.html>. See also N. Nakayama,

‘Chitekizaisan-Seido Kaikaku no Keii to Kadai (The Process of the Reform of the Intellectual
Property System and the Future Tasks)’, Jurist, No. 1326, pp. 2–4.
² T. Tsukahara, ‘Chizai-Kōsai niokeru Soshō-Unei no Jōkyō to Chizai Kōsai niokeru Senmonka
no Katuyō no Jissai (Actual State of Process Management and the Use of Experts in the Intellectual
Property High Court)’, Jurist No. 1326, p. 10.

Thirdly, criminal penalties for infringement of intellectual property rights
were strengthened by the amendment to the Copyright Law, the Patent Law, the
Law against Unfair Competition, and the Seeds and Plants Law.³
Fourthly, in most of the laws throughout the area of intellectual property, pre-
sumption of the amount of loss is now available. The court is empowered to order
the submission of documents required for proving infringement and the calcula-
tion of loss.⁴
Finally, also in most laws in this area, a system of orders for the protection of
confidentiality has been introduced. If a trade secret is disclosed in an infringe-
ment action, the party may ask the court to order the other party not to use this
trade secret for purposes other than the pursuit of litigation, or to disclose it to a
third party (e.g. Patent Law, Art. 105-4).
2. Patent Law5
(1) An overview
An embryonic form of the patent system emerged in Japan in 1871 in the
form of the Summary Rules of Monopoly. These were replaced by the Patent
Monopoly Ordinance of 1885, influenced by French and US law. A new Patent
Law was enacted in 1899, together with the Design Law and the Trade Mark
Law, in order to pave the way for accession to the Paris Convention on the
Protection of Industrial Property. Japan became a signatory to the Convention
in the same year.
The 1899 Patent Law was superseded by a new Law in 1922. This laid the basis
of the present patent system, and marked a shift away from the previous system
where priority of invention was determined by the date of invention. The new
Law introduced the ‘first to file’ system.
The present Patent Law was adopted in 1959 together with the Law on Utility
Models.⁶ Some provisions of the Patent Law apply with necessary modifica-
tions to utility models. The Patent Law has undergone various amendments
since then. The 1970 amendments introduced an early disclosure system and an
examination-on-requirement system. In 1975 product patent was recognised and
pharmaceutical products came to be covered by the Patent Law. By the 1987
amendments, a multi-item claim system, similar to those of English and French
³ ‘Chitekizaisan Kihon-Hō no Shikō Jōkyō oyobi Kongo no Hōshin ni tsuite (The

Implementation of the Basic Law on Intellectual Property and the Future Policies)’, <http://www.
kantei.go.jp/jp/singi/titeki2/kettei/060224housin.html>.
⁴ K. Tawara, ‘Chosakuken-Hō no Ichibu o Kaiseisuru Hōritsu (Law on the Partial Amendment
of the Copyright Law)’, Jurist, No. 1251, p. 33.
⁵ For an overview of the Japanese Patent Law in English, see H. Kawaguchi, The Essentials of
Japanese Patent Law (Alphen aan den Rijn, 2007).
⁶ Laws No. 121 and 123, 1959.
Intellectual Property Law 365
law, was adopted. In 1994 the Law was amended in order to bring it into line with
TRIPs (Treaty on Trade Related Aspects of Intellectual Property Rights).⁷
There were further amendments in the 2000s. In 2003, there was a major
amendment regarding the procedure for contesting the validity of a patent.
Measures to expedite the patent examination procedure was introduced in 2004.
In the same year, it was made possible for the application for a utility model to
be converted to an application for a patent. Amendment on employees’ invention
was also made in that year.
Japan ratified the Stockholm Amendments to the Paris Convention in 1975.
Japan has also ratified the World Intellectual Property Organisation Treaty, the
Patent Co-operation Treaty (hereinafter, the ‘PCT’), and the Strasbourg Treaty
on the Classification of Patents.
(2) Patentability
Invention is defined by the Patent Law as a highly advanced creation of technical
ideas by utilising the law of nature (Art. 2, para. 1). It must be a result of the
application of the ‘law of nature’. Therefore mathematical theories, methods of
ciphering, and computer programmes are not patentable. Whether it is a ‘highly
advanced’ creation or not is relevant when distinguishing a patentable invention
from an invention suitable for protection as a utility model.
There are three basic requirements for an invention to be patentable: novelty,
inventive step, and industrial applicability (Art. 29). In addition, it should not
be an invention identical to an earlier application (Art. 39). The Law does not
define novelty. Instead, it lists grounds by which novelty is lost (Art. 29. para. 1).
Thus, if the invention was publicly known or implemented in Japan, published
in Japan or abroad, or had become available to the public via telecommunication
channels before the application, it is not patentable. In one case, the invention
was disclosed in the specification for a utility model in Germany. Copies of the
specification were available on request. The Supreme Court denied the novelty of
the invention.⁸
There are some exceptions to this provision. For example, if the inventor tests
the invention and discloses it in a publication or at a research conference, the
invention is still patentable provided that the patent application is filed within
six months from the date of disclosure (Art. 30, para. 1). Evident abuse is
also an exception. Novelty is not lost where the invention was exhibited in an
international exhibition organised in a member country of WTO or the Paris
Convention (ibid., para. 3).
Concerning inventive steps, the Law provides that if a person with standard
knowledge in the given area of technology (a person skilled in the art) before the
⁷ Protocol C, World Trade Organisation Treaty.

⁸ Judgment of the Supreme Court, 4 July 1980, Minshū 34-5-570.
application could have easily made such an invention, it is not patentable (Art. 29,
para. 2). A mere aggregation of known technologies, easily accomplished conver-
sion of the existing technology, a mere replacement of a known technology, etc.
are not considered to have made an inventive step.⁹ On the other hand, an invent-
ive step may be acknowledged in an invention on the use of a known technology.
A well-known example is the insecticide DDT, which had previously been used
for a different purpose. Th is kind of invention is said to be common in the
pharmaceutical industry.
The third requirement of patentability is industrial applicability. Methods of
curing a disease or making a diagnosis fail to meet this requirement and are not
patentable. However, inventions concerning a gene or cell line may have indus-
trial applicability. Business method invention is also patentable as software related
patents in Japan, but in a reduced manner as compared to the United States.¹⁰
An invention which is likely to harm public order, good morals, or pub-
lic health is not patentable (Art. 32). Chemical substances, food, and medicine
became patentable in 1975. The invention of a substance produced by nuclear
conversion was made patentable in 1994.
Patents subsist for twenty years from the date of application (Art. 67, para. 1).
(3) Patent application procedure¹¹

Japan has adopted a system in which the first applicant, not the first inventor, is
granted a patent in cases where there are competing inventions (Art. 39, para.
1). If another person made the same invention independently and is exploiting
the invention as a business or preparing to do so, he may continue exploiting the
invention on a non-exclusive basis even after a patent has been granted to the first
applicant (Art. 79). At present, only a limited number of countries including the
United States maintain the first-to-invent system.
Any person who has made an invention is entitled to apply for a patent. Foreign
individuals who do not have an address or a place of sojourn in Japan are also
entitled to patents and other related rights, provided that their home country
treats Japanese nationals without discrimination, has a reciprocal arrangement
with the home country of these persons, or international treaties to such an effect
exist (Art. 25). With the establishment of the WTO, almost all countries meet
this requirement.
The Patent Office introduced an online application system for patents and
utility models in 1990. From 2000, applications for design rights, trade marks,
9
Judgment of the Tokyo High Court, 17 October 1967, Gyōsai-Reishū 18-10-1307.
¹⁰ J. Sfekas, ‘Controlling Business Method Patents: How the Japanese Standard for Patenting
Software Could Bring Reasonable Limitations to Business Method Patents in the United States’,
Pacific Rim Law and Policy Journal, January 2007, p. 203ff.
¹¹ For the patent procedure in English, see <http://www.jpo.go.jp/tetuzuki_e/t_gaiyo_e/pa_
right.htm>.
and the national part of the PCT application can be made online. As of 2001,
97 per cent of patent and utility model applications are made online.¹²
The applicant may claim priority based upon Article 4 of the Paris Convention.
If a person applies for a patent in a second country within 12 months of his
application in the first country, he retains priority. The Director General of the
Patent Office must be informed of the date and country of the first application
in writing simultaneously with the patent application in Japan (Art. 43, para. 1).
The applicant is also obliged to submit a copy of the priority document within
sixteen months (Art. 43, para. 2). Additionally, applications are granted prior-
ity if they are made by the following: Japanese nationals or nationals of member
countries of the Paris Convention, made in a member country of the WTO; and
nationals of WTO member countries in a member country of either the WTO or
Paris Convention (Art. 43-2, para.1).
By virtue of the PCT, residents and nationals of member countries are enti-
tled to international patent application. The application has the same effect as
an application within the designated countries. Thus, if there is an international
application for a patent in the UK, which is a signatory to the PCT, and Japan is
one of the countries designated by the applicant, the date of international appli-
cation is regarded also as the date of application in Japan (Art. 184–3, para. 1).
This also applies to utility models. Patent Offices of countries concerned may not
proceed with examination for twenty months after this date, while the matter
proceeds at international level.
Patent applications are filed with the Director General of the Patent Office.
The Patent Office is an agency attached to the Ministry of Economy, Trade and
Industry (hereinafter, the ‘METI’). Its activities cover the examination of patent
applications and the registration of utility models, industrial designs, and trade
marks.
Application can be filed via patent attorneys (benrishi), but this is not mandatory.
However, individuals who do not have an address or a place of sojourn, and jurid-
ical persons which have no office in Japan, must apply via an agent who is either
domiciled or resident in Japan (Art. 8, para. 1).
The application must be accompanied by a specification, drawings, and a sum-
mary (Art. 36, para. 2). Previously, an application was needed for each invention.
The scope of the claim used to be narrow compared with that of other industrial-
ised countries. In order to join the PCT, a multiple claims system was introduced
in 1975 and expanded in 1987 (Art. 36, paras 4 and 6 and Art. 37).
Application in a foreign language is now possible. Previously, when foreign
applicants applied for patents overseas in a foreign language or claimed prior-
ity in Japan under the Paris Convention, they had to translate the documen-
tation into Japanese within a fairly short period of time. It was not possible to
correct translation errors, and in some cases priority was lost. This was an issue
¹² <http://www.jpo.go.jp/shiryou_e/toushin_e/kenkyukai_e/pdf/17-p3chapter2.pdf>.
in the US–Japan SII Talks in the early 1990s. TRIPs also require the adoption
of patent application in the language of the home country. The 1994 amendment
to the Patent Law has made it possible to apply in foreign languages designated
by the Ordinance of METI (Art. 36-2). At present, only applications in English
are possible, but in the future applications in other languages will be permitted.
The applicant has to submit a Japanese translation of the documents within two
months. Errors in translation can now be corrected (Art. 126, para. 1).
After applications are made they are disclosed to the public. Previously,
applications were disclosed only when it was confi rmed that there was no
ground for refusal to grant a patent. However, since it takes time to reach that
stage, it was considered appropriate to disclose the application earlier. Without
knowing other persons’ applications there might be overlap of research and
investment. Under the current system, after one and a half years from the
date of application, the Director General of the Patent Office publishes the
specification and the drawings in the Patent Gazette (Art. 65-2, paras 1 and 2).
If someone exploits the invention as a business on the basis of information
published in the Patent Gazette while the patent application is pending, the
applicant is entitled to compensation, provided that he has issued a warning
(Art. 65-3, para. 1).
Until 1970 all patent applications were fully examined by the Patent Office.
In fact, not all applicants want full examination. For example, there are those
who do not want to obtain a patent, although their inventions are patentable.
They simply apply in order to prevent others from obtaining a patent on the same
invention. Some people are not certain whether the invention is patentable, but
just to make sure that others do not obtain a patent, they apply for a patent.
As the number of applications steadily increased it was thought better to reverse
the principle and the exception. Under the current system, only applications for
which the applicant or any other person requests examination are examined
(Art. 48-2). Thus, any person may demand examination within three years of
the patent application. An examination fee is payable. If there is no request for
examination within this period the patent application is deemed to be withdrawn
(Art. 48-3, para. 4).
Patent applications are examined by a patent examiner (shinsakan). Examiners
are guaranteed independence in the same way as administrative judges (shin-
pankan) of the Patent Office. They can be excluded on grounds provided by law,
but they cannot be challenged by the applicant (Arts 139 and 48). Applications
are normally examined by a single examiner without a hearing.
The Patent Law lists grounds for refusal to grant a patent (Art. 49). These
include instances where the invention does not meet the requirements of patent-
ability; where the invention is identical to another invention which has been filed
earlier and was disclosed before examination or published upon examination;
or when another person filed an application earlier. When the applicant is not
the inventor and has not been assigned the right to apply by the inventor, the
application will also be turned down. If the examiner finds grounds for refusal,
the applicant is informed of the decision and the reason for refusal.
When the examiner comes to the conclusion that a patent should be granted,
he renders a decision in writing. Upon payment of the patent fee, a patent is
granted by registration (Arts 51 and 66, para. 2).
A refusal by the examiner to grant a patent can be appealed within thirty days
(Art. 121). The appeal is considered by the administrative judge, whose decision
is subject to judicial review.
Until the 1994 amendment, there was a system enabling objection before
granting patents. If there was no ground for refusal, the application was pub-
lished in the Patent Gazette. Documents were available for public inspection at
the Patent Office for two months. Any person was entitled to file an objection to
the application published in the Gazette within three months of publication. At
the same time, the applicant was given an exclusive right to exploit the invention
as a business. This right was extinguished retrospectively if eventually a patent
was not granted.
In practice, only 2 per cent of publicised patent applications were rejected by
this procedure. In the light of criticisms of the delay in processing patent applica-
tions, it was considered to be inappropriate to wait three months before the grant-
ing patents. Therefore, following the trade negotiations with the United States,
this system was replaced by a system of objection after the grant of the patent.
The validity of a patent can be contested by filing a complaint with the Patent
Office in cases where a patent was granted to an application for which a patent
should not have been granted (Art. 123). The complaint is examined by admin-
istrative judges. There is no time-limit for claiming invalidity. The validity of a
patent can only be contested via this procedure. Defendants in an infringement
action cannot claim invalidity in court, unless the patent is invalidated by the
Patent Office.
The decision of the Patent Office is subject to appeal to the Intellectual Property
High Court.
(4) Employee’s invention

An invention which by its nature falls within the scope of business of the employer
is an employee’s invention if the acts which led to the invention belong to the present
or past work under this employer. If the employee is granted a patent for such an
invention, the employer is entitled to a non-exclusive licence to exploit this inven-
tion. An employee, who, by contract or office rules, assigns the right to obtain a pat-
ent, or the patent itself, or grants a non-exclusive licence to the employer, is entitled
to a reasonable payment (Art. 35, paras 1 and 3).
In 2003, the Supreme Court ruled on the payment by the employer for the
employee’s invention. In this case, Olympus Optical had a regulation on
employees’ inventions by which the employer was entitled to have the right to
apply for a patent from the employee, and in return, was to pay a reward to the
employee. In this case, the amount paid by the company was 210,000 yen. The
employee brought an action against the company, arguing that his contribu-
tion was worth at least 900 million yen. The Supreme Court ruled that if the
reward paid by the company in accordance with the company’s rules is short of
the reasonable amount as provided by the Patent Law, the employee is entitled to
the difference.¹³ In another case, an ex-employee was granted 20 billion yen at
the district court, but the parties settled at 900 million yen in the High Court.
There was a concern among the companies of the substantial amount of rewards
claimed by employees. The Patent Law was subsequently amended in order to
provide for the procedure of determining the ‘reasonable amount’ and to expand
the list of elements which should be taken into account in the determination.
(5) Infringement
A patent confers rights to prevent third parties who are not authorised by the
patent holder from exploiting the patent which includes producing; using; offer-
ing to sell; selling or importing for the purpose of production, use, offering for
sale, or sale (Art. 2, para. 3).
A patent holder as well as those who have an exclusive licence are protected
against infringements. Infringements also include indirect infringements
(deemed infringements). Thus, the production, assignment, importation, or offer
of assignment or importation of an item that is (i) solely used for the production
of an item that comprises infringement and indispensable for the solution of the
task of the invention, (ii) done as a business, and (iii) knowing that the invention
is patented and the item is to be used for the exploitation of the invention are
infringements (Art. 101, para. 2). Those who infringed a patent or an exclusive
licence of another person are presumed to have been at fault (Art. 103).
Infringement litigation used to be time-consuming and costly. It was some-
times difficult to demarcate the boundary of a particular invention, and a ‘grey
zone’ was left. Therefore, people often settled out of court.¹⁴ However, with the
reform of the dispute settlement procedure in the 2000s, this may change.
An injunction is available if a patent or an exclusive licence is infringed, or
there is a likelihood of infringement (Art. 100, para. 1). Fault is not a prerequisite
for an injunction. Demands can be made to destroy objects which constituted
infringement, to demolish the equipment used for the infringement, and to take
other measures to prevent infringement (ibid., para. 2).
Damages are claimed on the basis of general tort law (Civil Code, Art. 709).
Fault on the part of the infringer is presumed by the Patent Law (Art. 103). The
amount of loss is also presumed. In cases where the infringer has sold products
¹³ Judgment of the Supreme Court, 22 April 2003, Minshū 57-4-477.

¹⁴ Y. Hashimoto, Tokkyo-hō (Patent Law), 4th edn (Tokyo 1994) p. 271.
which constitute infringement, the amount of loss is presumed to be the number

of products sold multiplied by the profit which the patent holder or a licensee
could have made per unit. This amount, however, should not exceed the amount
compatible with their production capacity. In other cases, the profit which the
infringer has made is presumed to be the loss of the patent holder or licensee (Art.
102, paras 1 and 2). Patentees and licensees may also claim damages equivalent
to the amount that they would normally have received for the exploitation of the
invention if the infringer made a profit (ibid., para. 2).
If, by infringement, the reputation (business goodwill) of the patentee or licen-
see was harmed, the court may order the infringer to take necessary measures to
restore their reputation (Art. 106). This is normally done by publishing a state-
ment of apology in a newspaper.
Infringement is subject to criminal penalties (Art. 196). Penalties have been
strengthened over the years. The maximum penalty is ten years’ imprisonment
and/or a fine of 10 million yen (Art. 196). The Patent Law also provides for vicari-
ous liability. If a representative, agent, or employee of a juridical person infringes
a patent or an exclusive licence in the course of the business, the juridical person
is subject to a maximum fine of 300 million yen (Art. 201).
3. Copyright Law15
(1) An overview
The first Copyright Law in Japan was enacted in 1899, when Japan was about
to sign the Berne Convention for the Protection of Literary and Artistic Works.
Japan signed the Convention in 1899, and since then has ratified the Brussels Act
and Paris Act of the Berne Convention. Under the 1899 Law, copyright subsisted
for thirty years after the death of the author. No formality was required for the
copyright to take effect.
The 1899 law was replaced by the present Copyright Law in 1970.¹⁶ The term
of subsistence was extended to fifty years. Furthermore, the moral rights of the
author were expanded and neighbouring rights came under the protection of the
Copyright Law. The Law has undergone various amendments. Major amend-
ments took place in 1985 and 1986, when copyright protection was extended to
computer programmes and databases.¹⁷
In the 2000s, the Copyright Law has gone through various amendments.
In 2002, moral rights for performers were introduced. In 2003, the period of
subsistence for cinematographic works was extended to seventy years and
¹⁵ For an overview in English, see P. Ganea et al. (eds), Japanese Copyright Law (The Hague,
2005).
¹⁶ Law No. 48, 1970. ¹⁷ Ganea et al. (eds), supra, pp. 2–18.
the judicial remedy for infringement was expanded. In 2006, penalties for
infringement were further strengthened.
In addition to the Berne Convention, Japan ratified the Universal Copyright
Convention in 1956. Other international treaties to which Japan is a signatory
include the Rome Convention on the Protection of Performers, Producers of
Phonograms and Broadcasting Organisations (1989) and the Geneva Convention
on the Protection of Phonogram Producers from Unlicensed Copying (1978).
Japan has yet to sign the Vienna Treaty on the Protection of Typeface and the
Brussels Treaty on Satellite Broadcasting.
(2) The scope of copyright protection

Works which are entitled to copyright protection are defined by the Law as
creative expression of thoughts or sentiments in the literary, scientific, artistic,
or musical domain (Art. 2, para. 1). This includes literary and musical works,
choreographic and pantomimic works, artistic works and works of applied art,
architectural works, maps and drawings, cinematographic works, and photo-
graphs as well as computer programmes (Art. 10, para. 1). However, copyright
protection does not extend to programming languages, rules, or algorithms.
Layouts of semi-conductor circuits are separately protected by the Law on the
Layout of Semi-Conductor Circuits of 1985.¹⁸
Derivative (secondary) works are protected independently of the original work,
but this should not affect the protection of the original work (Art. 11). A deriva-
tive work is defined as a work created by translating, arranging musically, modi-
fying, dramatising, cinematising, or otherwise adapting an existing work (Art.
2, para. 1, subpara. 11). Edited works are also protected, insofar as the selection
or the arrangement of materials is original (Art. 12, para. 1). Databases are pro-
tected provided that the selection or systematic organisation of the information is
original. This does not affect the copyright over individual works which comprise
the database (Art. 12-2).
(3) The protection of computer programmes

The means of protection for computer programmes has been a focus of debate
since the 1970s. At one stage, the then Ministry of International Trade and
Industry considered enacting a special sui generis law for the protection of com-
puter programmes, with a shorter subsistence (fifteen years) and a fairly broad
compulsory licence system. However, the United States, Germany, and France
chose to protect computer programmes by copyright law. Also Japanese courts
acknowledged that computer programmes were ‘creative expressions of an ori-
ginal scientific thought of the author’ and should therefore be protected by
¹⁸ Law No. 43, 1985.

copyright.¹⁹ The Copyright Law was amended in 1985 in order to extend protec-
tion to computer programmes. A system of registration of the date of creation of
computer programmes was introduced in the same year.
However, in recent years there has been a growing awareness that the pro-
tection of computer programmes solely by copyright was insufficient. Therefore,
in addition to protection by copyright, protection by patent is now available
to software-related inventions.²⁰ The Guidelines for the Implementation of
Patent Law published by the Patent Office in 1997 acknowledge the patentabil-
ity of software-related inventions.²¹ Thus, when a software-related invention is
expressed in a sequence of processes or operations connected in a time series,
or a procedure, the invention can be defined as a process invention by specify-
ing the procedure. In addition, ‘a storage medium having a programme recorded
thereon’ or ‘a storage medium having structured data recorded thereon’ can be
regarded as a product invention.
Since 2002, the Patent Law categorises computer programmes as ‘product
inventions’. According to the Patent Law, the Internet transmission of a protected
computer programme is regarded as equivalent to the ownership transfer/rental
of a tangible product incorporating a patented invention and is subject to the
permission of the patent holder (Art. 2, para. 3, subpara. 1).²²
(4) Rights of the author

Authors in the context of the Copyright Law include juridical persons and associ-
ations without juridical personality. A person identified in the work as an author
is presumed to be the author (Art. 14). Works created by an employee in the
course of business on the initiative of the employer and published in the name of
the employer belong to the latter (Art. 15, para. 1).
The author is entitled to a copyright and to moral rights. In the previ-
ous Copyright Law, all manner of use of the work was regarded as a ‘copying’.
However, under the current Law, ‘copying’ is defined as a reproduction by means
of printing, photographing, photocopying, recording etc. in a tangible manner
(Art. 2, para. 1, subpara. 15). Reproduction in a non-tangible manner is covered
as separate specific rights such as the right to reproduce, perform, broadcast or
diff use by cable network, recite, exhibit the work, show a cinematographic work
to the public, and distribute copies of the work (Arts 21–26). The author also
has a right to present the work to the public by lending copies (Art. 26-2) and to
¹⁹ Decision of the Tokyo District Court, 28 September 1984, Hanta 534-246 (Pacman case).
²⁰ N. Nakayama, Kōgyō-shoyūken-hō (Industrial Property Rights), vol. 1, Tokkyo-hō (Patent Law),
2nd edn (Tokyo, 1998), pp. 155–158.
²¹ <http://www.jpo.go.jp/iken/tt1210-038_kaitei.htm>.
²² P. Ganea, in Ganea et al. (eds), supra, p. 27.
translate, musically arrange, modify, dramatise, cinematise, or otherwise adapt
the work (Art. 27).²³
The Copyright Law protects the moral rights of the author. Thus, an author
has the right to publish the work, the right to be identified as the author, and the
right to integrity, i.e. to object to derogatory treatment of the work (Arts 18–20).
As regards the right of integrity, the Law provides that authors have the right to
maintain the identity of the work and its title, and these should not be altered,
cut, or otherwise modified against his will (Art. 20, para. 1). In one case, a par-
ody was produced out of a photograph. The author added a photograph of a huge
car tyre to the original photograph, which featured snowy mountains. This was
found to be an infringement of the moral rights of the original photographer.²⁴
There was controversy over the authorship of cinematographic works. This
covers films as well as videos. The Copyright Law explicitly provides that the
author of a film is the person who, by producing, supervising, directing, filming,
or art-directing the work, contributed to its overall creation (Art. 16). Usually,
the director, producer, cameraman, and art director are co-authors of a film.
However, if the film was produced by employees in the course of business on the
initiative of a juridical person, this juridical person is the author (Art. 15, para.
1). Authors of the original novel, scenario, music, etc. have copyright, but are not
regarded as co-authors of the film itself. The copyright of a film belongs to the
person (usually a juridical person) who has taken the initiative and was in charge
of producing the film, provided that the author has agreed to take part in the pro-
duction (Art. 29, para. 1). The copyright holder of a cinematographic work has a
right to present the work publicly, to distribute copies, and to offer copies to the
public for rent (Arts 26 and 26–2).
Copyright takes effect when the work was created. As a rule, copyright subsists
for fifty years after the death of the author (Art. 51). If the author is not known or
used a pseudonym, the copyright subsists for fifty years after publication. If the
author is known despite using a pseudonym, then the general rule applies. Works
of a juridical person or any other organisation subsist for fifty years after publica-
tion (Art. 53). The same rule applies to cinematographic works and photographs.
If these works are not published within fifty years of their creation, copyright
ceases to exist (Arts 54 and 55).
Works of foreign individuals are also protected under the Copyright Law.
Such works which are first published in Japan are protected as a work originating
in Japan. If the work was first published abroad, it is not regarded as a work under
the Japanese Copyright Law, but by virtue of international treaties it qualifies for
protection in Japan. If the work was first published abroad, but was published in
Japan within thirty days thereafter, it is treated as a work originating in Japan
(Art. 6).
²³ N. Nakayama, Chosakuken-hō (Copyright Law) (Tokyo, 2007), pp. 210–249.

²⁴ Judgment of the Supreme Court, 28 March 1980, Minshū 34-3-244.
(5) The protection of neighbouring rights

As regards neighbouring rights, Japan has ratified the Rome Convention for
the Protection of Performers, Producers of Phonograms and Broadcasting
Organisations. The present Law covers the rights of performers, producers of
phonograms, broadcasting companies, and cable broadcasting companies.
Performers have an exclusive right to have their performance recorded or fi x-
tured, and to broadcast their performance either by wireless or cable (Arts 91 and
92). If a broadcasting organisation (either wireless or cable) uses for broadcasting
a phonogram on which the performance was recorded, the performer is entitled
to fees for secondary use (Art. 95, para. 1). Performers also have a lending right,
i.e. a right to present their performance to the public by lending phonograms
(Art. 95–2, para. 1). On the other hand, producers of phonograms have a right to
reproduce a phonogram and the right to fees for secondary use of the phonogram
in broadcasting (Arts 96 and 97, para. 1).
Broadcasting organisations are given a right to reproduce the broadcast by
sound or visual recordings and by photographs. They also have a right to rebroad-
cast, to diff use by cable, and to communicate television broadcasts to the public
(Arts 98–100).
The duration of the protection of neighbouring rights is fifty years from the
year following the date of the performance for performances, the first fi xation of
sounds for phonograms, and the broadcast for broadcasts (Art. 101).
(6) Infringement
In cases of infringement, injunctive relief is available. The destruction of the object
which constituted the infringement, objects produced by the infringement, and
machinery and equipment used solely for infringement can also be demanded
(Art. 112). Infringement includes importation into Japan, for distribution, of
articles made by an act which would have constituted an infringement if it was
committed in Japan at the time of importation. Knowingly distributing items
produced by an act of infringement, possessing them for distribution, exporting
them for business, or possessing them for exportation as a business also consti-
tutes infringement (Art. 113, para. 1). As regards moral rights, after the death of
the author relatives are entitled to claim an injunction (Art. 116, para. 1).
Damages can be claimed on the basis of general tort law. ‘Deemed infringe-
ments’ are also covered as is the case with patents (Art. 113). There is a provision
on the presumption of the amount of loss, similar to that in the Patent Law
(Art. 114).
The Copyright Law provides for twenty-five categories of permissible use of
a work without constituting infringement. These include copying for private
use, copying of part of the work in libraries, copying at educational institutions,
quotations, reproduction in school textbooks, reproduction as examination
questions, etc. In the last two instances a fee must be paid (Art. 30–Art. 47-4).
Published works can be performed, recited, and presented to the public on a non-
profit making basis (Art. 38).
The government is currently planning to introduce a general provision on
‘fair use’.²⁵
There is a system of compensation for private recording. Manufacturers of
digital equipment such as DAT, MD, CD recorders, CD-R, and CD-RW are
mandated to contribute to a fund, which, in turn, pays compensation to copy-
right holders.
Criminal sanctions are also provided for infringement and other violations
(Art. 119–Art. 122-2). The maximum penalty for infringement is ten years’
imprisonment or 10 million yen fine (Art. 119). As vicarious liability, juridical
persons may be imposed a maximum 300 million yen fine for the act of a repre-
sentative, an agent, or an employee (Art. 124).
4. Protection of Trade Marks
The first Trade Mark Law of Japan was enacted in 1899 together with the Patent
Law. It was replaced by the present Trade Mark Law in 1959.²⁶ The Law initially
covered only trade marks, while service marks were protected by the Law against
Unfair Competition. By the 1991 amendment, service marks also came to be cov-
ered by the Trade Mark Law. A further change was introduced in 1994 following
TRIPs. Another amendment took place in 1996, when, inter alia, the protection
of well-known marks was introduced. The Law against Unjust Competition had
already introduced some protection for such marks. The amended Trade Mark
Law prohibits the registration of trade marks identical or similar to a well-known
mark, regardless of whether the original mark is registered or not.²⁷ In 2005,
trade marks for regional organisations were introduced, followed by retail trade
marks in 2006.
A trade mark is defined by the Law as characters, letters, figures, signs, a
combination of these, or a combination of these with colours which are used on
merchandise or for services in business (Art. 2, para. 1). The exclusive right to use
a trade mark is created by its registration with the Patent Office (Art. 18, para.
3). The duration of the registration is ten years, but it can be renewed.
Trade marks which lack distinctiveness cannot be registered. For example,
a trade mark which primarily consists of the common name of the goods or
services expressed in an ordinary way, or a trade mark which is extremely sim-
ple and common, cannot be registered. In addition, marks which resemble the
²⁵ Nikkei, 23 October 2008. ²⁶ Law No. 127, 1959.

²⁷ K. Matsuo, ‘Shōhyō-hō no 1996 nen kaisei (The 1996 Amendments to the Trade Mark Law)’,
Jiyū to Seigi 1997, No. 11, pp. 48–51.
well-known mark of an entity such as the Red Cross, or the United Nations,
may not be registered (Art. 4). Furthermore, a mark which resembles a trade
mark broadly recognised by consumers as representing another entrepreneur’s
goods or service is not registrable for use with similar goods or services (Art. 4,
subpara. 10). The same applies to trade marks which may mislead as to the qual-
ity of the goods or services (ibid., para. 16). In addition, trade marks similar to a
trade mark already registered cannot be registered (ibid., subpara. 11).
Applications for registration are filed with the Patent Office. The goods or
services to which the trade mark is attached must be designated. A document
which exhibits the trade mark with an explanation must be submitted with the
application. The application is examined by an examiner of the Patent Office and
is published in the Patent Gazette if there is no ground for refusal. Any person
may file an objection to the trade mark within two months of the publication. If
there is no objection or objections turn out to be groundless, the final decision
to register the trade mark is rendered. The decision of the examiner is subject to
appeal to the Intellectual Property High Court.
In addition to direct infringement of trade marks, the Law provides for acts
which are deemed to be infringements. These include the use of a trade mark simi-
lar to the registered mark on designated goods or services; the use of a registered
trade mark or a similar mark on goods or services similar to designated goods or
services; the production and importation of items which incorporate a registered
trade mark, or a similar mark on them for the purpose of using such a trade mark
on designated goods or services or similar goods or services. Furthermore, import-
ation of items solely used for producing things which incorporate a registered trade
mark or a similar mark as business constitutes an infringement (Art. 37).
It should be noted that the Customs Tariff Law lists as items prohibited from
importation, amongst other items: goods that infringe patents, utility model
rights, design rights, trade mark rights, and copyright (Art. 21). As is the case
with patent and copyright infringement, an injunction is available and damages
can be claimed. Arrangements are made concerning ‘deemed infringement’ and
the presumption of the amount of loss (Arts 36–38). Criminal sanctions are also
provided for (Arts 78–82).
5. Protection of Trade Secrets
The basic law which protects trade secrets is the Law against Unfair
Competition.²⁸ This Law, which should not be confused with the Anti-Monopoly
Law (Competition Law) of 1947, emanates from the Paris Convention. It was
originally enacted in 1934 when Japan ratified the Amsterdam Act of the Paris
²⁸ For an overview of this Law in English, see C. Heath, The System of Unfair Competition
Prevention in Japan (London, 2001).
Convention which was designed to control ‘all kinds of acts which are against
unfair practice in commerce and industry’. The 1934 Law was replaced by a new
Law in 1993. Although the German Unfair Competition Act of 1896 served as
a model, provisions on trade secrets contained in the German Act were dropped
at the drafting stage. It was only in 1990 that the Law in Japan was amended to
provide protection to trade secrets.²⁹
The Law lists various types of acts which comprise unjust competition and are
subject to injunction. These include the use of a name, trade name, trade mark,
or package, identical or similar to those which are widely recognised amongst
consumers as another person’s; the use as one’s own of a name, trade name, trade
mark, or package identical or similar to those well-known as another person’s;
false statements of origin, and misrepresentations about quality, methods of
production, or content of the merchandise (Art. 1, para. 1). By the 1990 amend-
ments infringement of trade secrets was added to this list. The actual scope of
protected trade secrets is expected to become clearer with the accumulation of
case law.
The information must not be known publicly if it is to be protected as a trade
secret. This means that the information should not be available to unspecified
persons save by unfair means. The information must have an economic value and
be treated as a secret by the holder. The holder must have made sufficient efforts
to keep the information secret. Therefore, access to the information must have
been limited to a certain number of people. Furthermore, the holder must make
clear that the information is restricted, for example by designating it as ‘secret’ or
‘restricted’.
The Law basically covers two types of unjust competition involving trade
secrets. The first is the unauthorised acquisition of trade secrets by unlawful
means, and the use or disclosure of trade secrets thus obtained (Art. 2, subpara.
4). If a person acquires, uses, or discloses trade secrets knowing that they had
been obtained by such means, or was at serious fault in not knowing it, this is
also unlawful competition (ibid., subpara. 5). If a person who has obtained trade
secrets by legitimate means later becomes aware of the fact that the secrets had
been obtained in an unlawful manner, he may not use or disclose such information.
Otherwise, it constitutes unlawful competition (ibid., subpara. 6).
The second type of unjust competition involving trade secrets is the use or
disclosure, for the purpose of unfair competition or of harming the interests of
the original holder of trade secrets, which were disclosed to this person by the ori-
ginal holder (ibid., subpara. 7). Knowingly obtaining, using, or disclosing trade
secrets which were disclosed in an unlawful manner, or being at serious fault in
not knowing this, also constitutes unjust competition (ibid., subpara. 8).
Holders of trade secrets (entrepreneurs) whose interests are, or are likely to
be affected, are entitled to seek an injunction. In addition, they may require the
²⁹ Law No. 47, 1993.

destruction of items incorporating trade secrets, as well as end-products and any

equipment used for infringement (Art. 3). They are also entitled to damages and
other measures to restore their credibility (Arts 4 and 7).
In 2003, as part of the drive to strengthen protection of intellectual property,
a criminal penalty was introduced for the infringement of trade secrets. Those by
deceit or by the infringement of the management of trade secrets such as the theft
of the document or recording media on which the trade secret is recorded, inva-
sion of the premises where the trade secret is kept, or unlawful access to a com-
puter are punishable by a maximum of ten years’ imprisonment or a 10 million
yen fine (Art. 21). There is vicarious liability for juridical persons—maximum
300 million yen fine (Art. 22, para. 1).
It is not uncommon for companies to sign an agreement with employees for
protecting trade secrets. Employees are often bound by agreements not to work
in a competing company for a certain period. Such agreements are considered to
be valid if the restriction is reasonable and arrangements are made to compensate
the employees for the restrictions on their choice of workplace.³⁰
This Law also covers the payment of bribes to foreign public officials in line
with the OECD Convention. This is subject to criminal penalties. There have
been some prosecutions in the last couple of years.
6. Other Types of Intellectual Property
(1) Utility models

Japan has a two-tier system of patent and utility models. The Law on Utility
Models of 1959 protects ‘petit inventions’ (devices) which concern the shape,
structure, or combination of things (Art. 1). Invention in this context means a
creation based on technical ideas by using the law of nature.
A person who has made such a petit invention which is industrially applic-
able may register it as a utility model. Novelty, industrial applicability, and non-
obviousness are required. An application for registration is filed with the Patent
Office. The registration takes effect without examination.
(2) Designs
The Design Law of 1959 is the primary law protecting designs.³¹ Design is
defined as the shape, pattern, colour, or combination of these which is visually
perceived as aesthetic (Art. 2, para. 1). There are three basic requirements for
registration: novelty, industrial utility, and creativeness (Art. 3). Applications for
³⁰ Judgment of the Nara District Court, 23 October 1970, Kaminshū 21–9/10–1369.

³¹ Law No. 125, 1959.
registration are filed with the Patent Office. If there are competing applications,
the first applicant is entitled to registration (Art. 9, para. 1). Rules concerning an
employee’s invention are applied with modification to designs.
The Design Law has a peculiar system of registration under seal (secret registra-
tion). Thus, an applicant may require the Patent Office to keep the design secret
for a maximum of three years after registration. Drawings and other materials are
kept under seal.
Once registered, the holder of the design right has an exclusive right to exploit
the design and similar designs in a business. The duration of the right is 20 years
(Art. 21).
(3) New plant varieties and biotechnological products

Japan ratified the Paris Convention on the Protection of New Plant Varieties in
1981. Accordingly, the Seeds and Plants Law was amended. New plant varieties
are protected for twenty-five years after registration. With the advance of tech-
nology, some new species which may fulfil the requirements of patent protection
have emerged. Remedies for infringement are available. Criminal penalties are
provided in the Law for infringement.
As regards bacteria, patents are available. Japan is a signatory to the Budapest
Convention on the International Recognition of the Depositing of Bacteria in
the Patent Procedure.
16
Labour Law
1. The Development of Labour Legislation
The Civil Code accommodates provisions on employment as one of the ‘typical

contracts’ provided in the Code, together with contracts of sale, lease, gift, etc.
However, the Code presupposes that the parties in contracts are on an equal
footing. This naturally does not reflect the true state of affairs in labour relations.
Therefore, it was recognised that laws which would supplement the Civil Code
and provide better protection to workers were needed.
The necessity of protecting the interests of workers was acutely felt in the
course of the rapid modernisation which began in the late nineteenth century.
However, the government was slow in reacting to such needs. It was only in 1911
that the government finally enacted the Factory Law against strong resistance
from industry. This Law set forth restrictions on the employment of women and
children, the main restriction being a twelve-hour day, which was far below the
international standard of the time.
An embryonic trade union was formed at the end of the nineteenth century. In
1897 an association aimed at establishing trade unions (Rōdō-Kumiai Kisei-Kai)
was established. Under the auspices of this association, several trade unions, such
as the steel workers’ union, the railway workers’ union, and the printers’ union
were set up. The government reacted by promulgating the Public Security and
Police Law (Chian-keisatsu-hō) in 1900. This punished the promotion and insti-
gation of strikes, as well as ‘acts of assault and intimidation’ carried out to induce
workers to join a trade union. It was actively enforced and served as an instru-
ment to suppress labour movements, which aimed primarily to improve working
conditions.
Although the relevant provision in the Public Security and Police Law was
repealed in 1926, other acts such as the Law on the Maintenance of Public
Security of 1925 were available to suppress labour movements. Thus, until the
end of the Second World War, the Japanese labour movement was subject to strict
restrictions by the government.
A watershed in the development of Japanese labour law came with the occu-
pation by the Allied Forces. In October 1945, as one of the five major democratic
reforms, the creation of trade unions was encouraged. In the twenty months

following the end of the war around 17,000 trade unions were formed.¹ The Trade
Union Law was enacted in December 1945. This Law, however, was considered
by US advisers to be ‘unduly restrictive’, because it provided an insufficient guar-
antee of the autonomy of trade unions. The Law was totally amended in 1949.²
In 1946 the Labour Relations Adjustment Law, which set out institutions and
procedures for settling labour disputes, was enacted.³ The next year, following
the adoption of the Constitution which provided for the protection of workers’
rights, the Labour Standards Law was adopted.⁴ This sets standards for wages,
hours of work, annual paid holidays, safety of work, minors and female workers,
skills training, rules of employment, etc. It was aimed at raising labour protection
to the level of ILO standards.
The policy of encouraging trade union movements by the Allied Forces
underwent a change in late 1947. The change involved the status of public sector
workers. The post-war labour movement had been primarily led by trade unions
in the public sector. The Allied Forces became concerned at the growing power of
trade unions in the public sector and opted to curb their power. In 1948 a ban was
introduced and government workers were prohibited from conducting collective
bargaining and organising strikes. In the same year, the Law on Labour Relations
in Public Corporations was adopted (currently the Law on Labour Relations in
Designated Independent Administrative Juridical Persons).⁵ This Law prohibited
workers of such organisations from taking industrial action.
Thus, basic laws concerning labour relations were all adopted in the years
shortly after the end of the Second World War, and basically remained unchanged
until the 1990s, although some new laws have been enacted in recent years,
including the Law on Measures for Employment, the Law on Equal Opportunity
of Employment for Men and Women, and the Workers Dispatch Law.⁶
The drive for deregulation which started in the mid-1990s had significant
influence on labour legislation. Deregulation regarding working hours which
began in 1987 by the introduction of variable working hours and flexible working
hours went even further in the 1993, 1997, 1998, 2002, and 2003 amendments to
the Labour Standard Law. The Workers Dispatch Law and the Job Security Law
were deregulated. As for the latter, private job centres that charge fees have been
liberalised since 1997.⁷ Concerning the working hours, Keidanren (the Japan
Business Federation) proposed to introduce an equivalent of the US white collar
exemption, but the bill failed to be adopted by Parliament.
¹ For the history of post-war reforms in labour law, see W. G. Gould IV, Japan’s Reshaping of
American Labour Law (Cambridge, Mass., 1984), pp. 23–28. See also H. Marutschke, ‘Labour
Law’ in W. Röhl (ed.), History of Law in Japan since 1868 (Leiden, 2005), p. 544ff.
² Law No. 174, 1949. ³ Law No. 25, 1946. ⁴ Law No. 49, 1947.
⁵ Law No. 257, 1948. ⁶ Laws No. 132, 1966; No. 113, 1972; and No. 88, 1985.
⁷ F. Yanagisawa, ‘Saikin 10 nenkan niokeru Rōdōhō no Kisei-Kanwa (Deregulation of Labour
Law in the past Decade)’, Reference, 2008, April, pp. 88–98.
Labour Law 383
The regulatory reform meant that there should be clear rules understandable to
the public. The problem with labour law was that the rules on individual employ-
ment relationships were primarily covered by the Labour Standard Law and other
labour legislation designed for the protection of workers that were not really com-
prehensive. For instance, rules on dismissal, transfer, etc. were not covered by
them. In order to supplement these laws, rules often developed out of case law,
but they were not necessarily accessible to the public or clearly understandable.
When the Labour Standards Law was amended in 2003, there was a parliamen-
tary resolution referring to the enactment of a comprehensive law covering labour
contracts. The preparation of the new law started in 2004, but the employers and
the workers failed to reach an agreement on various points. Therefore, the final
outcome, the Labour Contract Law of 2007, was substantially reduced in scope.⁸
The justice system reform that started in 2001 also affected labour law. It was
held as a target that the time needed to dispose of labour cases in court should be
reduced by half. In response to this requirement, a new system of settling labour
disputes between individual workers and the employer—the labour adjudication
system (rōdō-shinpan-seido)—started operation in 2006. Such disputes can be
heard by a panel of a judge, plus two labour commissioners. In the first eight
months, 877 cases were accepted through this procedure.⁹
On the other hand, in the last decade or so some negative outcomes of the
‘restructuring’ of business by companies in response to the slow recovery from
the bursting of the bubble economy became evident. The number of non-regular
workers increased from a quarter to a third of employed workers, and the number
of those workers with very low wages (the ‘working poor’) has increased. The long
working hours of middle-aged male workers caused concern for the work/life
balance. Some amendments to the labour legislation, for example, the Minimum
Wage Law, addressed these problems.¹⁰
2. Constitutional Guarantees
The Constitution has two provisions directly concerning the rights of workers.
Article 27 provides that all people have the right and duty to work. This mandates
8
T. Muranaka, ‘Rōdō-keiyaku-hō Seitei no Igi to Kadai (The Significance of the Enactment of
the Labour Contract Law and its Task)’, Jurist, No. 1351, pp. 42–43. An English translation of the
Law is available at: <http://www.jil.go.jp/english/laborinfo/library/documents/llj_law17.pdf>.
9
A. Otake, ‘Rōdō-Shinpan-Seido no Shikō-Jōkyō to Saibansho niokeru Torikumi (the State
of Implementation of the Labour Adjudication System and the Approach of the Court)’, Jurist,
No. 1331, p. 32.
¹⁰ K. Sugeno, ‘Koyō-system no Henka to Rōdō-hō no Kadai (Changes in the Employment
System and the Task of Labour Law)’, Jurist, No. 1347, pp. 3–6. For the general information on the
state of labour in Japan, see Japanese Working Life Profile 2007/2008 Statistics, <http://www.jil.go.jp/
english/jwl.htm> and Labour Situation in Japan and Analysis: General Overview 2006, <http://www.
jil.go.jp/english/lsj.html>, both edited by Japan Institute for Labour Policy and Training.
the government to take adequate legislative and administrative measures to
provide opportunities to work. The government has responsibility to provide
assistance to those who do not have a job.
At present, laws such as the Law on Measures for Employment and the Law on
Employment Insurance are designed to assist the unemployed.¹¹ The former pro-
vides for job arrangement and recruitment, training, and employment agencies.
Public employment offices run by the Ministry of Health, Labour, and Welfare
are responsible for the implementation of this Law.
Another relevant provision in the Constitution is Article 28 which guaran-
tees the rights of workers to organise and to act collectively. It prohibits unjust
interference with the activities of trade unions by government agencies. This
provision has its origin in the Constitution of the Weimar Republic of 1919. The
Weimar Constitution, which remained in force until the Republic was super-
seded by the Third Reich, provided that all agreements and measures intended to
restrict or obstruct freedom of organisation were void. Article 28 of the Japanese
Constitution is constructed in a similar manner.
Article 28 guarantees three fundamental workers’ rights. First, the right to
organise and to join an organisation for negotiating with the employer on an
equal footing is guaranteed. Organisation in this context includes not only trade
unions, but also other temporary organisations of workers. Both the govern-
ment and employers are prohibited from interfering with the internal matters of
trade unions. Discriminatory treatment due to membership of a trade union is
an unfair labour practice and therefore null and void (Trade Union Law, Art. 7,
para. 1).
The second right guaranteed by Article 28 is the right to collective bargaining.
Workers are entitled to collectively negotiate labour conditions with their employ-
ers. Employers may not refuse to negotiate with the representatives of the workers
without a justifiable reason. Unjustified refusal constitutes an unfair labour prac-
tice (Trade Union Law, Art. 7, subpara. 2). Agreements made through collective
bargaining invalidate employment contracts which contravene the agreement.
Finally, Article 28 guarantees the right of workers to act collectively. This
includes the right to strike and to take other actions in the course of a dispute.
Such actions are exempted from civil and criminal liability (Trade Union Law,
Art. 1, para. 2 and Art. 8).
Agreements between employers and workers which violate rights guaranteed
by the Constitution are null and void. Technically, such acts are invalidated on
the basis of Article 90 of the Civil Code, which provides for public order and
good morals.
A problem is the scope of industrial actions guaranteed by the Constitution.
In practice, it is sometimes difficult to delineate the boundary between political
¹¹ Laws No. 132, 1966; No. 116, 1974.

Labour Law 385
and economic industrial action. In some cases the demands of workers are pol-
itical but also have a bearing on their economic welfare. The courts deny the
legitimacy of strikes with purely political demands that are beyond the power of
the employer.¹² This view is supported by the majority of labour law specialists
who contend that the scope of industrial action has to be limited to issues which
can be solved through collective bargaining. In cases where a political demand
is combined with economic demands, if the political demand was of less sig-
nificance than the economic demands, the action may be eligible for protection
under the Constitution.¹³
Although the Constitution does not explicitly exclude government workers
and workers in the public sector from the protection extended by Article 28, stat-
utes restrict their rights. First, certain categories of government workers, such as
policemen, firemen, and members of the Self Defence Force, are denied all three
fundamental rights. Government workers engaged in non-manual work are not
allowed to bargain or act collectively. Other government workers, such as post
office workers and workers of public corporations, are not allowed to act collect-
ively, i.e. they may organise and bargain collectively, but may not take industrial
action.
The constitutionality of these restrictions has been contested in courts on
various occasions. At one stage, the Supreme Court acknowledged the uncon-
stitutionality of the restrictions imposed on government workers by applying the
‘less restrictive alternative’ test, which had been developed in the United States.
However, in 1973 the Supreme Court changed track and gave a broad discre-
tion to the legislature to limit the rights of government workers and workers of
government corporations.¹⁴ Scholarly opinion is mostly against the position of
the Supreme Court, which virtually gives the government carte blanche to restrict
the rights of these workers and workers.¹⁵
Japan has ratified most of the treaties prepared by the ILO, including Treaty
No. 87 on the Freedom of Association and the Right to Organise, and Treaty
98 on the Application of Principles of the Rights to Organise and Collective
Bargaining. Some lawyers argue that the restrictions on the right to organise
and to act collectively imposed on government workers and workers in pub-
lic corporations fail to meet international standards. The UN Commission on
Human Rights has repeatedly criticised the restrictions.¹⁶
¹² Judgment of the Supreme Court, 26 October 1966, Keishū 20-8-901. Judgment of the
Nagoya High Court, 10 April 1971, Rōmin 22-2-453.
¹³ T. Shimoi, Rōdō-hō (Labour Law) (Tokyo, 1998), p. 194.
¹⁴ Judgment of the Supreme Court, 25 April 1973, Keishū 27-4-547.
¹⁵ N. Ashibe, Ken pō (Constitutional Law), 4th edn (supplemented by K.Takahashi) (Tokyo,
2004), pp. 263–265.
¹⁶ See K. Nakayama, ILO Jōyaku to Nihon (ILO Treaties and Japan) (Tokyo, 1983). UN High
Commissioner for Human Rights, Concluding Observations of the Human Rights Committee: Japan,
19/11/98 CCPR/C/79/Add.102.
3. Employment Relations
(1) An overview
Since the post-war reforms, labour contracts have not been left to the autonomy
of the parties, as is the case with other civil law contracts, but have come to be
subject to various laws that extend protection to workers, and that set forth rules
concerning collective agreements and working conditions. Provisions of the Civil
Code concerning labour contracts are still applicable, but are supplementary to
the provisions of labour legislation.
Before the enactment of the Labour Contract Law in 2007, the basic law regu-
lating the relationship between employer and worker was the Labour Standards
Law. This Law sets the standards for the working conditions of all workers except
seamen and certain groups of government workers. It provides for employment
contracts, wages, working hours, work safety, rules of employment, compensa-
tion, etc. Employment contracts that are against the Labour Standards Law are
null and void and are replaced by the terms provided in the Law (Art. 13). Foreign
companies are subject to this Law insofar as they operate in Japan. On the other
hand, Japanese companies operating overseas are not subject to the provisions of
this Law.
However, the Labour Standards Law did not cover matters such as unfair dis-
missal and transfer/secondment of workers. Therefore, it had to be supplemented by
case law. Significant doctrines concerning the equal treatment of men and women,
unfair dismissal, and the right to discipline workers have developed out of court
rulings. Also the permissibility of revising the rules of employment to the disadvan-
tage of workers was addressed by the court in the absence of rules in the statutes.
Overall, case law has helped to broaden the protection of workers by the law.
The newly enacted Labour Contract Law provides for matters such as (i) the
permissible extent of the unilateral revision of the rules of employment by the
employer (Arts 9 and 10), (ii) secondment (Art. 14), and (iii) dismissal (Art. 16).
Since the views of those representing labour and the employers were so diverse,
the coverage of the Labour Contract Law became much more limited than was
originally envisaged. Therefore, rules accommodated in the Law are restatements
of case law which both sides could agree.¹⁷
Together with the laws, collective agreements and rules of employment play a
significant role. Collective agreement is concluded between a worker’s organisa-
tion or trade union on one hand, and the employer on the other hand. When a
contract of employment conflicts with the standards set by the collective agree-
ment, the offending provision is void, and standards set by the agreement are read
into the contract (Trade Union Law, Art. 16,).
¹⁷ Muranaka, supra, p. 46.

Labour Law 387
(2) Full-time and part-time workers

The Labour Standards Law defines ‘workers’ as those employed in business or the
workplace who are paid (Art. 9). Part-time and temporary workers also fall within
the definition of ‘workers’. Even when there was no formal employment contract
between the parties, the court has acknowledged that the Labour Standards Law
was applicable. Individuals such as an electricity meter reader and a cabaret band
member, both of whom were on an annual contract, were found to be covered by
this Law. In another case, a truck driver who worked for a company driving his
own truck was found to be a worker in the context of the Labour Standards Law.¹⁸
The court takes into account the actual relationship—the existence of subordin-
ate employment relations—between the company and the worker, rather than
legal formalities.¹⁹
Differential treatment between full-time and part-time workers is not in itself
against the law. In one case, an employer paid 80 per cent of the wage of full-time
workers to a part-time worker for the same hours of work. The latter sued the
company for discrimination. The court ruled that this did not amount to dis-
crimination on the ground of social status as prohibited by the Labour Standards
Law, but in this particular case it took into account that the content of the work,
length of employment, working hours, etc. were identical to those of full-time
workers, and upheld the claim.²⁰
The percentage of non-regular workers has been rising recently. In 1995, the
share of employees who work less than 35 hours a week was 17.4 per cent of
the total number of employees. In 2006, the percentage was 22.5 per cent. In the
same year, the number of regular employees was 34.1 million, while there were
11.25 million part-time and temporary employees, plus 5.52 million other non-
regular employees.²¹
There is a widening gap between full-time employees and part-time employees.
The government has adopted some measures to ensure ‘balanced treatment’ of
them, including the amendment to the Law on Part-Time Work.²²
(3) Rules of employment

Rules of employment are prepared by the employer after consulting the work-
ers. The rules cover shop rules and rules on working conditions. Typical rules
of employment include working hours, wages, methods of payment, retirement,
¹⁸ Judgment of the Kanazawa District Court, 27 November 1987, Hanji 1268–143 (Kitahama
Doboku-Saiseki case).
¹⁹ Judgment of the Supreme Court, 18 May 1962, Minshū 16-5-1108 (Ohira Silk Reeling case).
²⁰ Judgment of the Nagano District Court, Ueda Division, 15 March 1996, Hanta 905–276
(Marukō Alarm case).
²¹ Japanese Working Life Profile, supra, pp. 33–34.
²² Labour Situation in Japan, supra, p. 110.
etc. If the contract of employment conflicts with the standards set by the rules of
employment, the relevant clause is void (Labour Standards Law, Art. 93). Rules
of employment may not contradict collective agreements (Labour Standards
Law, Art. 92).²³
Employers of more than ten workers are required to submit their rules of
employment to the Director of the Labour Standards Supervisory Office. When
preparing the rules, the employer has to consult the trade union to which more
than half of the workers of the workplace belong. If no such trade union exists,
the employer is required to consult a representative of the majority of the workers
(Labour Standards Law, Art. 90, para. 1). The Law merely provides for prior con-
sultation with the trade union, not a joint decision. Therefore, the employer may
theoretically enact rules of employment against the will of a majority of workers,
once he has consulted them. This differs from the co-determination system in
Germany.
Whether or not the rules of employment can be unilaterally altered to the
disadvantage of the workers was at issue in a case where a bus company introduced,
via such rules, retirement at the age of 55. A manager who was dismissed after reach-
ing that age sued the company on the ground that the changes to the regulation did
not affect him, since it was a disadvantageous change unilaterally introduced by the
company. There was no explicit provision applicable in the labour legislation.
The Supreme Court ruled that (i) rules of employment acquire legal force by
Article 92 of the Civil Code, which provides for the effect of custom, insofar as
their content is reasonable, and is therefore binding upon all workers regardless
of whether they agreed to the rules, or whether the rules were known to them
individually; (ii) in principle, a unilateral change in the rules against the interests
of workers which deprives them of their vested interests or imposes unfavourable
working conditions is not permissible; (iii) however, individual workers are not
eligible to claim that the rules do not apply to them if the rules are reasonable,
and should then settle the matter through the collective bargaining procedure.
In this particular case, the retirement age of 55 was not considered to be unrea-
sonable, when taking into account that the retirement age for ordinary workers
in the company was set at 50, and that there was the possibility of employing this
person on a part-time basis afterwards.²⁴
This doctrine was incorporated in the new Labour Contract Law (Arts 9 and 10).
(4) Equal treatment

Equal treatment of workers as regards wages, hours of work, etc. regardless of
their nationality, religion, or social status is required by the Labour Standards
²³ K. Sugeno, Shin-Koyō-Shakai to Hō (The Employment System and the Law), new supplemented
edn (Tokyo, 2006), pp. 54–60.
²⁴ Judgment of the Supreme Court, 25 December 1968, Minshū 22-13-3459 (Shūhoku Bus case).
Labour Law 389
Law (Art. 3). Dismissal on the grounds that a worker was a Communist was ruled
by the court to contravene this provision insofar as he did not participate in activ-
ities such as sabotage.²⁵
On the other hand, when deciding whether to employ a particular person, the
Supreme Court ruled that employers are basically free to set the standards and
terms of employment. The Supreme Court is of the view that refusal to employ a
person with certain political or religious beliefs is not necessarily against the law.
In one case, a company was sued for rejecting a person who had taken part in a
students’ political movement while he was a student and failed to disclose this
fact during the interview.²⁶ Generally, when an applicant fails to disclose signifi-
cant information or provides false information at the interview, he bears the risk
of dismissal when the fact becomes known to the company. On the other hand,
when the information in question is insignificant, the dismissal may be regarded
as an abuse of rights by the company.²⁷
Another problem is gender discrimination. The Labour Standards Law did
not specifically refer to gender discrimination in its equal treatment provision.
Instead, it prohibited gender discrimination only as regards wages (Art. 4). Since
this provision is understood to require equal pay for equal work, it is not against
the Labour Standards Law if female workers are not given positions as high as
those of male workers and therefore receive a lower salary.
Despite this rule of equal pay for equal work, there may be cases where the
difference of wages comes from discrimination in promotion between men and
women. Under the newly amended Law on Equal Opportunities in Employment
for Men and Women, such differences in wages are unlawful.²⁸
In the absence of an explicit provision in the Labour Standards Law, the court
has endeavoured to eliminate gender discrimination. For instance, in a case where
a company provided in its rules of employment for retirement ages of 60 for male
workers and 55 for female workers, the Supreme Court upheld the judgment of
the High Court, which had found the regulations to be unreasonable and against
public order and good morals as provided in the Civil Code.²⁹ The equal treat-
ment clause in the Constitution (Art. 14) was also cited in this judgment.
In Japan female workers were often forced to leave the company once they
were married. This practice, which was written into rules of employment, was
found to be unjust discrimination. The compulsory retirement of female workers
for reason of marriage and childbirth was found to be illegal by the court.³⁰ In
²⁵ Judgment of the Kōbe District Court, 20 July 1956, Rōmin 7-4-838 (Bōki Seizō case); see also
Judgment of the Supreme Court, 22 November 1955, Minshū 9-12-1739 (Dai-Nippon Bōseki case).
²⁶ Judgment of the Supreme Court, 12 December 1973, Minshū 27-11-1536 (Mitsubishi Plastic
case).
²⁷ Sugeno, supra, pp. 65–69. ²⁸ Shimoi. supra, pp. 30–31.
²⁹ Judgment of the Supreme Court, 24 March 1981, Minshū 35-2-300 (Nissan Motors case).
³⁰ Judgment of the Tokyo District Court, 20 December 1966, Rōmin 17-6-1408 (Sumitomo
Cement case); Judgment of the Osaka District Court, 10 December 1971, Rōmin 22-6-1163 (Mistui
Shipbuilding case).
another case a company set the retirement age for female workers at 30—this was
found to be unreasonable discrimination.³¹ Such practices now contravene the
amended Law on Equal Opportunities in Employment for Men and Women.
This Law was prepared as an amendment to the then existing Law on the
Welfare of Working Women after International Women’s Year in 1975.³² The
amended Law is aimed at ensuring equal opportunities and treatment of men and
women. Discrimination by gender in training, welfare, retirement, and dismissal
are explicitly prohibited (Arts 9–11). In the same year, Japan ratified the Treaty
on Abolition of Gender Discrimination.
However, the amendment did not necessarily meet the requirements of the
Treaty. The elimination of discrimination in employment, position, and promo-
tion was presented as a target, rather than a legally binding requirement. Effective
means of ensuring the implementation of this legislation were also lacking.
Therefore, the Law underwent a major change in 1997, effective from 1999.
According to the amended Law, the employer may not discriminate between
men and women in advertising for a position or recruitment (Art. 5). Similarly,
there is to be no discrimination concerning posting, promotion, or training (Art. 6)
or in the provision of benefits such as housing subsidies (Arts 9 and 10). Employers
are also obliged to take measures against sexual harassment (Art. 21, para. 1).³³
The Law was further amended in 2006. Anti-discrimination regulations were
strengthened, and the prohibition of indirect discrimination was introduced.
(5) Minimum wages

Minimum wages are regulated by the Minimum Wages Law.³⁴ Agreements
between the employer and the worker regarding wages less than the minimum
wage are void, and are replaced by the minimum wage (Minimum Wages Law,
Art. 5, para. 2,). The Law does not in itself provide minimum wages, but provides
for the procedure to determine minimum wages. At present, minimum wages are
determined in each prefecture by the Director of the Labour Standards Bureau
on the recommendation of the Minimum Wages Advisory Board. The Director,
following this area’s minimum wages, determines minimum wages for the indi-
vidual industry.
Employers must pay wages in ‘currency’, not in kind, directly to the workers,
and on a regular basis (Art. 24, para. 1).
(6) Working hours

The Labour Standards Law provides for a forty-hour week (Art. 32. para. 1).
Working hours were reduced from forty-eight hours to forty hours per week in
³¹ Judgment of the Tokyo District Court, 1 July 1969, Rōmin 20-4-715 (Tōkyū Kikan Kōgyō case).
³² Law No. 113, 1972. ³³ Shimoi, supra, pp. 27–31. ³⁴ Law No. 137, 1959.
Labour Law 391
1987. Employers may not require workers to work more than eight hours a day,
or forty hours a week. Employers must give workers at least one day off a week
(Art. 35, para. 1). Employers may ask workers to work longer than eight hours
a day or forty hours a week on a particular day or week, provided that the rules
of employment or an agreement with a majority of workers provide for average
working hours which do not exceed the limit set forth by the Law (Art. 32-2).
If the employer concludes a written agreement with a trade union which is
composed of a majority of workers and submits the agreement to the Director of
the Labour Standards Supervisory Bureau, the employer may extend the working
hours and also make the workers work on Sundays and holidays (Art. 36). If no
trade union composed of a majority of the workers exists, the agreement should
be concluded with a person representing a majority of the workers. There is no
formal limit on the extension of working hours under this provision except for
work especially harmful to health, such as mining.
The government has been promoting variable working hours and discretion-
ary working hours which allow for more flexibility. In 2006, 58.5 per cent of
companies had a variable working hours system in place.³⁵
The working hours in Japan are the highest amongst the industrialised coun-
tries. In 1989, the total actual working hours of Japanese workers were 2,159
hours, in contrast to 1,957 hours in the United States and 1.638 hours in the
then West Germany. However, the total amount of working hours has been in
constant decline, reflecting the changes in the law and patterns of life. In the
Financial Year 2004, the total working hours per year in Japan were 1,996 hours,
as compared to 1,948 hours in the United States, 1,525 hours in Germany, 1,538
hours in France and 1,888 hours in the UK.³⁶ Overtime work is common in
Japan. In 1989 average overtime hours were 254 per annum, but have been in
decline since then. In 2002, the average was around 171 hours.³⁷
In general working hours in Japan have been declining. However, it is has been
noted that the percentage of people who are working less than thirty-five hours
a week, and those working more than sixty hours per week have both increased.
The primary reason of the decrease in working hours is the increase in the num-
ber of people who work less than thirty-five hours per week.³⁸
The Labour Standards Law also guarantees annual holidays. It provides that
those who have been employed for one year without interruption and have worked
on more than 80 per cent of the working days in that year should be given ten
days’ annual paid holidays. Those who have been employed for more than two
years are given one extra day’s holiday per year in addition to the six days (Art. 39).
Thus, annual holidays are regarded as a reward for uninterrupted employment.
³⁵ Japanese Working Life Profile, supra, p. 59. ³⁶ Ibid., p. 61.

³⁷ JETRO, supra, p. 125. Labour Situation in Japan, supra, p. 46.
³⁸ Labour Situation in Japan, ibid.
In 2004, workers in a company with more than 1,000 workers were eligible for
19.2 days’ paid holidays; actual holidays taken were 8.5 days.³⁹
Special provisions in the Labour Standards Law govern working hours of
minors and women. As for minors, i.e. those below 15 years of age, there is a
general prohibition against employment (Art. 56, para. 1). There are restrictions
on working hours for those under age 18.
Employers are prohibited from making a female worker who is more than three
months pregnant work if she asks for leave. Employers must also give women
eight weeks’ maternity leave. However, if a woman asks to return to work more
than six weeks after giving birth, the employer may let her do so provided that a
doctor certifies that the work will not be harmful to her health (Art. 65, paras 1
and 2).
There used to be fairly strict restrictions on working hours for women provided
by the Labour Standard Law. However, in recent years it has been argued that
some protection for women, especially restrictions on working hours, actually
narrowed their opportunity to work and therefore, except for restrictions related
to pregnancy and birth, women should be protected in the same way as men but
not more. Thus the amendments to the Labour Standards Law in 1985 and 1997
relaxed the restrictions on the working hours of women.
(7) Disciplinary actions

Most companies have their own disciplinary rules. Workers become subject to
such rules by entering into an employment contract with the employer. Employers
may dismiss, ask for the resignation of, suspend, reduce the remuneration of, or
give severe or ordinary reprimands to workers who violate the rules. Normally,
the grounds for taking disciplinary action and the sanctions available are speci-
fied in the rules of employment.
When disciplinary measures are taken without reasonable grounds, or admin-
istered in an unjust manner by reference to the principles of proportionality and
due process, the court regards it as an abuse of disciplinary power and therefore
void.⁴⁰ It should be added that even when there are grounds for taking discip-
linary action, if the misconduct is not likely to affect the internal order of the
company, then disciplinary action cannot be justified.⁴¹
The grounds for taking disciplinary action include neglect of duty, breach of
duty, private misconduct, and political activity. As regards political activity, there
was a case where a worker in a government corporation (later privatised) wore a
badge with a political slogan on it during office hours. When he was ordered by
his supervisor to take off this badge, he distributed leaflets of protest. He was
³⁹ Ibid., p. 46.
⁴⁰ Judgment of the Supreme Court, 16 September 1983, Rōhan 415–16 (Daihatsu-Kōgyō case).
⁴¹ Judgment of the Supreme Court, 1 November 1983, Hanji 1100–151 (Meiji Dairly case).
Labour Law 393
reprimanded for violations of the disciplinary rules. The district court and the
High Court found the worker’s case to be substantiated and the reprimand
void. However, the Supreme Court overruled the judgment of the High Court.
According to the majority opinion of the Supreme Court, political activity
within a company may generate political conflict among workers, and eventu-
ally obstruct the management of the company. It is probable that such activity
could affect the stability of the workplace. Therefore, the Court found that it was
reasonable for the employer to prohibit political activity by office regulations. A
dissenting opinion indicated that political activity only covers those specifically
related to a particular political party or group, and thus suggested that the activ-
ity of the worker in this case was merely an expression of his beliefs and had no
political content.⁴²
As regards misconduct of workers in private, in one case dismissal of a factory
worker on the ground of his arrest for a minor crime was contested. The Supreme
Court ruled that as the misconduct was committed in his private time and the
crime was not significant, and his position was not of a supervisory nature, his act
could not be regarded as having seriously discredited the company.⁴³ However,
in general, the Supreme Court tends to acknowledge that misconduct in the pri-
vate life of a worker justifies disciplinary action by the employer in cases where
the company is seriously discredited, even though it had no actual effect on the
business.⁴⁴
Restating the case law, the Labour Contract Law provides that if the discip-
linary measure objectively lacks reasonable grounds, and cannot be recognised
as acceptable from the common sense perspective of society in the light of the
nature of the act, mode of the act, and other circumstances, it is void as an abuse
of rights (Art. 15).
(8) The life-long employment system

The Civil Code provides that the maximum term of a contract of employment is
five years (Art. 626, para. 1). According to the Labour Standards Law, the term
may not exceed three years (Art. 14). It was the view of the legislature that con-
tracts of employment which were excessively long might result in forced labour
and thus constitute unjust restraints on workers. Naturally, if both parties agree
the contract can be renewed. If a contract for a longer period is concluded, work-
ers are entitled to rescind the contract after a year. If the labour relationship
continues after the expiration of the contract and the employer does not object, it
is deemed to have been renewed (Civil Code, Art. 629).
⁴² Judgment of the Supreme Court, 13 December 1977, Minshū 31-7-974 (Meguro Telegram and
Telephone Office case).
⁴³ Judgment of the Supreme Court, 28 July 1970, Minshū 24-7-1220 (Yokohama Rubber case).
⁴⁴ Judgment of the Supreme Court, 15 March 1974, (Minshū 28-2-265).
In reality, the majority of people work in the same company from the time
they left school until retirement. A person will find a job in a particular com-
pany, receive training, and stay there: job mobility is low in Japan. The contract
is usually for an indefinite period. Workers are of course free to quit and move to
another company, but they seldom do so.
Companies rarely dismiss workers, even in times of economic recession.
Instead, they take measures such as reducing working hours, reducing recruit-
ment, and transferring workers to other sections or other companies within the
group or to subsidiaries. Dismissal is the last resort.
In the United States or the UK, if a company suffers a heavy loss the first thing
the management does is to reduce the workforce. In contrast, in Japan the man-
agement prefers to cut the dividend rather than reducing the workforce. Also in
cases of technological innovation and structural changes in the industry, Japanese
companies transfer workers to other sections and companies, but they seldom
dismiss those who have become redundant.⁴⁵
The dwindling economy since 1990 has given rise to reconsideration of this sys-
tem. It was argued that this system raised the labour cost as employees get older,
and that the number of those who are unable to adapt to new technologies was
increasing. Therefore, this system, together with the seniority-based wage system,
should be reconsidered. Nevertheless, there are not that many companies that
are reviewing the life-long employment system. Instead, there is an increasing
number of companies reducing the number of regular staff to whom the life-long
employment system applies, and resorting to part-time workers.⁴⁶
(9) Unfair dismissal

The Civil Code provides that even if an employment contract is for a fi xed
term, the employer may dismiss the worker when there is a compelling reason
(Art. 628). If the contract is not for a fi xed term the employer may propose ter-
mination of the contract at any time. The determination takes effect in two weeks
(Art. 627, para. 1). Since this system may produce unfairness against workers,
labour legislation, namely the Labour Standards Law, has introduced limita-
tions on the right of dismissal by employers.
Firstly, an employer may not dismiss a worker during the statutory pre- and
post-natal leave, or within thirty days of the end of the latter. Secondly, workers
cannot be dismissed during the leave arising out of a work-related injury or disease
or for thirty days thereafter (Labour Standards Law, Art. 19, para. 1). Thirdly, the
employer must give the worker at least thirty days’ notice of dismissal, or thirty
days’ pay in lieu (Art. 20, para. 1). Collective agreements often include provisions
⁴⁵ R. Onodera, ‘Arbeitsverhaeltnisse in Japan’, in P. Hanau et al. (eds) Die Arbeitswelt in Japan

und in der Bundesrepublik Deutschland: ein Vergleich (Cologne, 1984), pp. 6–9.
⁴⁶ Labour Situation in Japan, supra, pp. 33–34.
Labour Law 395
limiting the dismissal of workers, such as an obligation on the employer to consult

the trade union. Rules of employment often include additional requirements.
Further restrictions on the dismissal of workers have developed out of judi-
cial precedents. The court has found dismissals to be an abuse of rights under
various circumstances. The doctrine of unfair dismissal has thus emerged from
case law.⁴⁷
In a leading case, the Supreme Court ruled that the employer’s right to dismiss
a worker constitutes an abuse of rights, and is therefore null and void, if no
objective and reasonable ground for dismissal exists, and the dismissal cannot
be justified by socially acceptable standards.⁴⁸ In another case, a broadcaster
was dismissed for failing to broadcast the news twice as a result of oversleeping.
However, he did not act intentionally or out of malice, his work record had been
satisfactory, he expressed remorse, and there had been no precedent of dismissal
in such cases. Besides, another worker who should have woken up the announcer
had also overslept, but he was merely reprimanded. The Supreme Court ruled that
even when there is a formal ground for dismissal, an employer is not always free
to dismiss the worker. In this particular case the Supreme Court found the dis-
missal unreasonable and void.⁴⁹This doctrine is now incorporated in the Labour
Contract Law which was enacted in 2007 (Art. 16).
Another problem is dismissal for redundancy. Since the oil crisis in 1973, some
industries have undergone contraction. As the life-long employment system had
already become established at that time, Japanese companies endeavoured to
avoid dismissals. However, dismissal was not always avoidable, and in some cases
was contested before the courts. The court has been fairly strict in judging the
necessity of redundancy dismissal. One judgment stated that in order for such a
dismissal to be valid, there has to be a serious crisis in business and efforts should
be made to transfer and absorb redundant personnel within the company.⁵⁰
A leading case is the Tōyō Oxygen case, where a chemical company dismissed
forty-seven workers of a section producing acetylene gas because of market
deterioration. Thirteen workers applied to the court for redress. The district court
found the dismissals to be void, but the High Court overruled this judgment. The
latter set three standards for judging whether the dismissal was really unavoid-
able. Firstly, the closure of the section had to be unavoidable and necessary for
reasonable business management. Secondly, there must have been no possibility
of transferring workers to similar sections or workplaces and the dismissal must
not have been arbitrary. Thirdly, workers to be dismissed must have been selected
⁴⁷ Sugeno, supra, pp. 65–66.

⁴⁸ Judgment of the Supreme Court, 25 April 1975, Minshū 29-4-456 (Nihon Shokuen Seizō
case).
⁴⁹ Judgment of the Supreme Court, 31 January 1977, Saikōsai-saibanshū 120–23 (Kōchi
Broadcasting Co. case).
⁵⁰ Judgment of the Okayama District Court, 31 July 1979, Rōhan 326–44 (Sumitomo Heavy
Industries case).
in accordance with objective and reasonable criteria. The High Court ruled in this
case that the company had met these standards. This judgment was upheld by the
Supreme Court.⁵¹
It is generally acknowledged that when dismissing workers by reason of
redundancy, according to the doctrine of good faith and fair dealing, the
employer must make efforts to avoid dismissal. When a company dismisses work-
ers without trying alternative measures such as a transfer within the company,
encouraging voluntary retirement, etc., such dismissal is usually found void by
the court.
Procedural fairness is also required in redundancy dismissals, as in dismissals
on other grounds. The employer must explain the situation to the trade union or
the workers and conscientiously discuss the matter with them.
(10) Transfer and secondment

In the 1970s, in order to cope with recession, instead of making redundancy dis-
missals many companies resorted to measures such as transferring workers to
sections or workplaces within the company and secondment to another company
within the group, or to subsidiaries.
Initially, companies were thought to have a free hand in transferring personnel
within the company. However, in recent years it has been acknowledged that the
company’s right to order transfer is not unlimited. If there was an explicit or tacit
agreement between employer and worker to the effect that the latter must accept
transfer, transfer is valid without specific consent by the worker. If this is not the
case, the worker is entitled to refuse transfer. Whether there was such an agree-
ment is to be judged from the employment contract, collective agreement, rules
of employment, and practice within the company. Transfers which involve the
worker moving house must be handled prudently.⁵²
The court has adopted a two-step approach. Firstly, the court ascertains
whether any limitation on transfer can be found in the contract, collective agree-
ment, or rules of employment. If there is no explicit or tacit agreement to accept
the transfer, the court will find the transfer order to be null and void. In fact, the
rules of employment in most companies in Japan do provide for the right of the
employer to transfer the worker within the company.
Secondly, even when the transfer was explicitly or tacitly agreed to by the
parties, the courts often find such orders to constitute an abuse of rights on the
part of the employer. The Supreme Court ruled on a case concerning the transfer
of a worker from Osaka to Nagoya. The court acknowledged that if the collect-
ive agreement and rules of employment provide for transfer, and the workplace
was not specified at the beginning of employment, the employer has discretion
⁵¹ Judgment of Tokyo High Court, 29 October 1979 (Rōmin 30-5-1002: Tōyō Sanso case).
⁵² Sugeno, supra, pp. 142–143.
Labour Law 397
to decide on the workplace. This does not constitute an abuse of power unless
the transfer is unnecessary for the business, is made out of inappropriate motives
or purposes, or is excessively onerous for the worker. In this particular case,
the Supreme Court ruled that even if the transfer results in the worker’s living
separately from his family, it is not necessarily an abuse of rights.⁵³
In another case, the Supreme Court ruled that the transfer of a school teacher
to another secondary school in the same city was appropriate, since it did not
involve any disadvantage as regards remuneration, workplace, or work.⁵⁴
On the other hand, the court has acknowledged that the consent of the worker
is necessary in cases where the transfer entails a substantial reduction in wages,
or significantly inhibits the career development of the worker.⁵⁵ The transfer of a
broadcaster with twenty years’ experience, who had been employed specifically as
a broadcaster, to another section was found to be unreasonable.⁵⁶
Secondments of workers to another company within the company group, a
subsidiary, or a subcontracting company are not uncommon in Japan. The prac-
tice became widespread in the 1990s with the continuing recession. The courts
have come to treat such secondments similarly to transfers within a company as
this practice became common.
In some cases, workers seconded to another company retain their position in
the original company (shukkō); in other cases they leave the first company (tenseki).
These two kinds of secondment require different considerations, since the latter
involves a change of identity in the parties to the contract of employment, whereas
in the former the original contract between employer and worker remains intact.
It is generally considered that, in the former case, the worker’s general or tacit con-
sent will suffice, while in the latter case more specific consent is necessary.
In the aftermath of the privatisation of the Japanese National Railway, second-
ments of workers—particularly those opposed to privatisation—to related com-
panies were common. In one case, the court acknowledged the existence of a tacit
agreement to accept secondment to another company, but suspended the order
on the ground that the work after secondment was quite different and that the
selection of workers to be seconded was not reasonable.⁵⁷
Previously, the court generally took the view that the consent of the worker
was needed in secondment in the form of shukkō, but in recent years they have
been more flexible if certain conditions are met. It is required that the seconded
company is in a close relationship with the original company, and measures
⁵³ Judgment of the Supreme Court, 14 July 1986, Rōhan 477–6 (Tōa Paint case).
⁵⁴ Judgment of the Supreme Court, 23 October 1986, Rōhan 484–7 (Osaká Prefectural
Committee for Education case).
⁵⁵ Judgment of the Wakayama District Court, 14 March 1959, Rōmin 10-2-127 (Wakayama
Pile Orimino case).
⁵⁶ Decision of the Tokyo District Court, 23 July 1976, Hanji No. 820, p. 54 (Nippon Television
Network Co. case).
⁵⁷ Judgment of the Osaka District Court, 30 November 1987, Hanji 1269–147.
are taken to avoid changes of working conditions to the disadvantage of the
worker.⁵⁸
In one case, a worker in a steel company was seconded to another company
as part of the restructuring programme. At that time the steel industry was in
serious difficulties. The worker contested the validity of the secondment order.
The court ruled that although the worker had never given comprehensive consent
to accept secondment, considering the fact that there were many such second-
ments occurring with the consent of the trade union, and that the measures were
taken to improve working conditions for the secondees, the secondment was
valid.⁵⁹
The Labour Contract Law restates the case law. If the secondment order by the
employer can be regarded as an abuse of rights and void in the light of the neces-
sity of the secondment and the circumstances regarding the choice of a particular
worker etc. (Art. 14).
(11) Mandatory retirement

In most companies a mandatory retirement age is provided in the rules of employ-
ment. According to a survey of the Ministry of Health, Labour and Welfare, in
2005, 95.3 per cent of companies had a mandatory retirement system. In 91.1 per
cent of the companies, the mandatory retirement age was 60.⁶⁰ The 2004 amend-
ment to the Elderly Persons Employment Security Law⁶¹ introduced a provision to
the effect that employers must take measures to secure employment until the age
of 65. Employers are under the obligation to take one of three measures: raising
the mandatory retirement age, continuation of employment after retirement if the
worker so desires, or the abolition of the mandatory retirement age (Art. 9).
4. Collective Labour Relations
(1) Trade unions

The basic statute on trade unions is the Trade Union Law. It deals with the
effects of collective agreements and remedies for unfair labour practices. It also
provides for criminal and civil law immunity for the legitimate actions of a trade
union.
Trade unions under this Law are organisations and their federations volun-
tarily formed by workers primarily in order to improve working conditions and
the workers’ economic situation. Organisations which allow the participation of
⁵⁸ Shimoi, supra, pp. 51–53.

⁵⁹ Judgment of the Fukuoka District Court, Kokura Division, 26 March 1996, Rōhan 703–80
(Nippon Steel Corporation case).
⁶⁰ Labour Situation in Japan, supra, pp. 58–59. ⁶¹ Law No. 68, 1971 as amended.
Labour Law 399
supervisors or others representing the interest of the employer, which are sub-
sidised by the employer, or which have primarily charitable, political, or social
aims are not regarded as trade unions under this Law (Art. 2).
One of the main characteristics of Japanese trade unions is that they are organ-
ised in each company, instead of across an industry as a whole or in accordance
with particular skills. Workers of a company usually belong to the same trade
union, regardless of the kind of work they do. Trade unions of companies
form a regional federation and also industrial or occupational federations. These
federations in turn form national organisations.
The percentage of workers who are trade union members has been decreasing
in recent years. In 1975 it was 34.4 per cent, while in 1998 the rate fell further to
22.4 per cent.⁶² In 2005, it fell even further to 18.7 per cent.⁶³
Trade unions are required to prove that they meet the above conditions, and
must submit their rules to the Labour Commission in order to take part in dis-
pute settlement procedures and have recourse to the remedies provided by the
Trade Union Law (Art. 5, para. 1). Labour commissions, which are administra-
tive commissions established at a central and prefectural level, have the power to
determine the eligibility of a trade union.
Most trade unions have union shop agreements with the employer. However,
these agreements merely provide that those who are not members of the trade
union should, ‘in principle’ be dismissed, or stipulate that ‘when this worker is
needed by the company, the company may employ him (or her)’. In this way,
union shop agreements are made to be flexible in Japan.⁶⁴
(2) Collective bargaining

Collective bargaining is guaranteed by the Constitution. Trade unions are
exempted from criminal or civil liability when engaging in collective bargaining.
Employers are not allowed to refuse to enter into collective bargaining without
justifiable reason (Trade Union Law, Art. 7, para. 2).
In practice, collective bargaining at the company level is the most common
form of negotiation. Since this type of collective bargaining can be disadvan-
tageous to workers who are generally in a weaker bargaining position than the
company, other methods of collective bargaining have emerged. In some cases,
a trade union federation of an industry bargains with a particular company on
behalf of the trade union of that company. In other cases, the federation jointly
negotiates with the company’s trade union, or sends a representative to take part
in the negotiations between the trade union and the company.
⁶² Mainichi Daily, 28 December 1998.

⁶³ <http://www.mhlw.go.jp/toukei/itiran/roudou/roushi/kiso/07/kekka.html>.
⁶⁴ K. Hokao, Rōdō-hō Nyūmon (Introduction to Labour Law), 3rd edn (Tokyo, 1994), pp. 261–
262. See also Sugeno, supra, pp. 318–320.
The scope of issues which can be handled via the collective bargaining process
is fairly broad. Employers are not free to decide terms and conditions of employ-
ment unilaterally. They are to be discussed in the collective bargaining process.
The transfer and dismissal of trade union members as well as the imposition of
disciplinary measures are matters regarded as being subject to collective bargain-
ing. Issues concerning management and production, such as the introduction
of new machinery, changes in production methods, and the reorganisation of
a company may also have to be discussed in collective bargaining if they affect
work conditions and employment.⁶⁵
If the employer refuses to bargain without justifiable grounds, the trade union
may apply to the Labour Commission for remedies (Trade Union Law, Art. 27).
The Commission reviews the application and, if it is substantiated, will order
the employer to take part in collective bargaining. Workers may also apply for
mediation by the Labour Commission (Art. 12).
Employers are not allowed to deal directly with individual workers when there
is a trade union within the company. Unlike the United States, where a system
of exclusive representation is adopted, in Japan if there are several trade unions
within a company each trade union is entitled to represent its members. In some
cases there is an agreement between the employer and the trade union that the
company will recognise a particular trade union as the only one with whom it
will negotiate. This kind of agreement infringes the rights of other trade unions
within the company and is considered to be void.⁶⁶
(3) Collective agreements

Collective bargaining is primarily aimed at concluding or revising collect-
ive agreements, which set forth rules concerning the relationship between the
employer and workers. Collective agreements also set standards of welfare and
working conditions of the workers, and provide for the extent of participation or
involvement of the trade union in the management of a company.
In some countries collective agreements are treated as non-binding agree-
ments, while in other countries they are regarded as binding contracts. In the
former case collective agreements do not necessarily affect individual contracts of
employment. In Germany collective agreements have a stronger effect. Collective
agreements have effects on individual contracts, and are even binding on those
who are not members of the trade union. Japanese law has adopted this German
system.
Collective agreements are concluded in almost all companies with more than
1,000 workers in Japan. Most are concluded on a company basis, i.e. agreements
⁶⁵ Sugeno, ibid., pp. 336–337.

⁶⁶ Shimoi, supra, p. 169.
Labour Law 401
between the company and the trade union. General agreements applicable to a
whole industry or profession are exceptions.
The content of collective agreements varies. Generally, they begin with
general provisions concerning trade union membership, union shop agreement,
etc. There follow provisions regarding trade union activities, personnel manage-
ment, working conditions, worker’s rights and duties, and safety arrangements.
They may also deal with the following: procedures for collective bargaining, the
scope of issues on which and the procedure by which the trade union is to be
consulted by the company, the complaints procedure, and the dispute settlement
clause.⁶⁷
Provisions of a contract of employment that conflict with the collective agree-
ment concerning terms and conditions of employment and other matters affect-
ing workers’ rights and duties are void (Trade Union Law, Art. 14). This is termed
the ‘normative effect’ of the collective agreement. The invalidated part is replaced
by the standards set out in the collective agreement. This applies regardless of
whether the standard set by a contract of employment falls short of the collective
agreement, or whether the former exceeds the latter. This is similar to US law, but
different from German and French law.⁶⁸ When there is no provision in the con-
tract of employment, the provision of the collective agreement directly regulates
the relationship between employer and worker.
The Law provides that the maximum term of agreement is three years (Art. 15,
para. 1). A provision often found in collective agreements requires that both
parties refrain from industrial action in order to revise or delete the provisions
of the agreement while the agreement is in force. This obligation is referred to as
an ‘obligation of peace’. Sometimes the parties agree to refrain from industrial
action altogether: breach may result in civil liability. Other common provisions
define the rules and procedures for disputes, such as those requiring the party to
try to settle the dispute through negotiation, requiring advance notice of indus-
trial action, and providing procedures for conciliation and mediation.
The effect of a collective agreement extends to those who are not party to
the agreement nor members of the trade union that is a signatory to the agree-
ment. The Trade Union Law provides that when more than three-quarters of the
workers of a factory or office are subject to a collective agreement, this agreement
binds other workers engaged in similar work (Art. 17). However, this does not
apply when the remaining minority is organised into another trade union, espe-
cially when it has concluded its own collective agreement with the employer.⁶⁹
Furthermore, the Law provides that the effect of a collective agreement concluded
⁶⁷ Nippon-Rōdō-Gakkai ed., Rōdō Jōken no Kettei to Henkō (Determination and Revision of the
Terms of Employment), (Tokyo 2000), pp. 106–109.
⁶⁸ Sugeno, Rōdō-hō (Labour Law), 5th edn (Tokyo, 1999), pp. 546–554. The first edition of this
book is available in English; Japanese Labor Law (Seattle, 1992) (translated by L. Kanowitz).
⁶⁹ Judgment of Tokyo District Court, 19 July 1969, Rōmin 20-4-813 (Katsuragawa Seishi
Seisakusho case).
by a large majority of workers in the workplace extends to other similar workers
and employers within the locality (Art. 18, para. 1). Since collective agreements
are usually concluded in each company, and not on an industry or area basis, this
last provision is seldom applied.
(4) Industrial action

The Constitution guarantees the right of workers to act collectively. This includes
the right to take industrial action as well as other actions which do not amount to
industrial action, such as distributing leaflets, organising meetings, and posting
bills and posters.
Although the current Criminal Code does not punish industrial action per se,
statutory provisions relating to the obstruction of business by force, extortion,
trespass, etc. are potentially applicable to industrial action. The Trade Union Law
provides explicitly that the legitimate activities of a trade union are ‘justifiable
acts’ in the context of Article 35 of the Criminal Code, and are exempted from
criminal liability. Employers may not claim damages from the trade union or its
members for taking part in a legitimate strike or other industrial action. Both
criminal and civil immunity emanate from the Constitution, and the provision
of the Trade Union Law is understood merely to confirm this constitutional guar-
antee. In addition, employers are not allowed to discriminate against workers
who have taken part in or organised legitimate industrial action.
Industrial action has to be legitimate as regards its subject, purpose, proced-
ure, and methods. Firstly, industrial action has to be pursued by a trade union,
although it does not have to meet the standards set by the Trade Union Law. For
instance, a group of workers temporarily organised to advance a specific demand
is also entitled to criminal and civil immunity, although it is not a trade union
in the strict legal sense. On the other hand, wild-cat strikes, initiated by a small
number of workers within a trade union, are not legitimate.
Secondly, the purpose of the industrial action has to be justifiable. In this
regard, the legitimacy of a political strike has been a focus of debate. The courts
maintain that purely political strikes which have no direct bearing on improving
the economic position of workers are not justified. Since the right to industrial
action is guaranteed by the Constitution as a means to facilitate collective bar-
gaining, issues which cannot be disposed of in the collective bargaining process
cannot be legitimate aims of industrial action.⁷⁰ Some lawyers are of the opinion
that industrial action against laws or policies directly related to economic inter-
ests of workers is justified.
Thirdly, industrial action has to be procedurally fair. For instance, it is
generally not justifiable to resort to industrial action without first making efforts
⁷⁰ Judgment of the Supreme Court, 2 April 1969, Keishū 23-5-685 (Zenshihō Sendai case).
Labour Law 403
to settle the dispute through collective bargaining. Industrial action taken in

breach of peace provisions in a collective agreement is also not justifiable.
Fourthly, the method of industrial action has to be appropriate. The use of force
is not justified. As for picketing, there are conflicting views. In Japan, picketing
plays a significant role in industrial disputes. The difference of opinion focuses
on the limits of picketing, i.e. whether it should be limited to peaceful persua-
sion or not. In a leading case, a trade union of a mining company started a strike,
demanding changes to the collective agreement. In the course of the dispute,
some members withdrew from the trade union. The company employed new per-
sonnel and, together with those who had withdrawn from the union, attempted
to break the picket line and resume business. Trade union members organised a
sit-in at the entrance of the mine, formed a scrum, and prevented a mining car
from entering the mine. Organisers of the picket were prosecuted for obstructing
business by force.
The Supreme Court ruled that the method of strike should be limited to a
refusal to work. Preventing the employer from operating his business by force,
threat, or obstructing the management of his property is not permissible. The
Court added that ‘various factors and circumstances’ should be taken into
account when judging the legitimacy of picketing.⁷¹ Since this judgment, the
Supreme Court has been stricter in dealing with the breadth of criminal immunity
when issues of picketing have arisen.⁷²
Employers adopt various measures against industrial action. They are free to
continue their business by using executive workers and other workers who do
not belong to the trade union. They are also free to employ replacements. The
Supreme Court did not accept that lock-outs were a legitimate practice in general,
but ruled that in certain circumstances, when the employer is in an extremely dis-
advantageous position, a lock-out can be justified as a counter-measure to recover
the balance of power between the employer and the workers.⁷³
In reality, the number of labour disputes has been substantially decreasing. In
1970, there were 4,511 labour disputes, whereas in 1990, it fell to 2,071, and in
2006, it was 708.⁷⁴
5. Procedure for Settling Labour Disputes
Labour commissions settle industrial disputes and provide remedies for unfair
labour practices. There are the Central Labour Commission, Central Seamen’s
⁷¹ Judgment of the Supreme Court, 28 May 1958, Keishū 12-8-1694 (Uhoro Coal Mine case).
⁷² Judgment of the Supreme Court, 25 April 1873, Keishū 27-3-418 (Kokurō Kurume Station
case).
⁷³ Judgment of the Supreme Court, 25 April 1975, Minshū 29-4-481 (Marushima Suimon
case).
⁷⁴ Working Life Profile, supra, p. 75.
Labour Commission, local labour commissions, and local seamen’s labour
commissions (Trade Union Law, Art. 19, para. 2).
Labour commissions are composed of representatives of employers, work-
ers, and those who represent the public interest—neutral members. The Central
Labour Commission consists of equal numbers (nine each) of members represent-
ing employers, workers, and the public interest. Members of the Central Labour
Commission are appointed by the Minister of Health, Labour and Welfare.
Representatives of workers are recommended by the trade unions. Appointment
of those representing the public interest requires the consent of both the employ-
er’s and the workers’ representatives (Art. 19).
Labour commissions are responsible for reviewing the eligibility of trade
unions for protection under the Trade Union Law (Art. 5, para. 1); reviewing
complaints for unfair labour practices and providing remedies (Art. 7); and
‘adjusting’ (settling) industrial disputes (Art. 20).
The procedure for the settlement of industrial disputes is regulated by the
Labour Relations Adjustment Law.⁷⁵ When industrial action has been taken or is
likely to be taken, the dispute can be brought to the labour commission (Art. 6).
The first stage of the procedure once the case comes to the commission is medi-
ation. A councillor appointed by the chairman of the labour commission makes
efforts to clarify the issues and resolve the differences. This procedure can be
initiated by either party to the dispute or by the chairman of the commission
(Arts 10, 12, and 13). Parties are free to accept or not to accept the advice of the
councillor.
The second device provided by the Labour Relations Adjustment Law is
conciliation. A conciliation panel set up within a labour commission hears the
views of both parties, drafts a settlement, and recommends it to both parties
(Art. 17). The conciliation procedure is initiated on joint application by both par-
ties or application by either party if there is a conciliation clause in the collective
agreement. In disputes involving public utilities, disputes on a major scale, or
disputes which seriously affect the public interest, either party to the dispute, the
labour commission, or the governor of a prefecture may initiate this procedure
(Art. 18).
The third device is arbitration conducted by an arbitration board established
within the labour commission (Art. 29). Arbitration procedure is initiated on the
joint application of the parties, or the application of one where there is an arbitra-
tion clause in the collective agreement. Arbitrators are chosen by the parties from
among members of the labour commission representing the public interest (Art.
31-2). The decision has the same effect as a collective agreement and is binding on
both parties (Art. 34).
As in US law, there is a system designed to cope with a state of emergency.
The Prime Minister is empowered to start an emergency adjustment (dispute
⁷⁵ Law No. 25, 1946.

Labour Law 405
settlement) procedure, when (i) the case concerns public utilities, (ii) the dispute
is on a large scale, or (iii) the dispute involves an industry with a special nature
such that it is likely seriously to affect the normal operation of the economy, or
seriously to affect the normal life of people (Art. 35-2). When an emergency
adjustment procedure has been triggered, the parties are not allowed to resort to
industrial action for 50 days (Art. 38).
The Trade Union Law provides for remedies for unfair labour practices.
Although the present system was primarily inspired by the US Wagner Act, the
definition of such practices differs from that found in the US. Four categories
of unfair labour practice are listed. These include discrimination and disadvan-
tageous treatment, such as dismissal, of the trade union members or those who
intend to form a trade union, refusal of collective bargaining without reasonable
grounds, control of or intervention with the organisation or management by the
employer of the trade union, and disadvantageous treatment of those who sought
remedies for unfair labour practices with the labour commission (Art. 7).
Trade unions and workers may claim damages for unfair labour practices. In
addition, they may pursue a remedy before the labour commission. Hearings are
conducted by members of the local labour commission representing the public
interest. If an act is found to be an unfair labour practice, the commission issues a
remedial order to recover the status quo ante (Art. 27). Most cases end in a settle-
ment before any formal decision is reached. If either party is unsatisfied with the
outcome of the first instance, the decision can be appealed to the Central Labour
Commission, and then to the court. The Administrative Litigation Law applies
to such cases.
In 2004, the Trade Union Law was amended in order to streamline the
procedure for reviewing unfair labour practices.⁷⁶ The system of labour adjudica-
tion for disputes between individual workers and the employer was introduced at
the district court level in 2006.
⁷⁶ A. Watanabe, ‘Futō-Rōdō-Kōi-Shinsa-Seido to Rōsō-hō no Kaisei (The System of Reviewing

Unfair Labour Practice and the Amendment to the Trade Union Law)’, Jurist, No.1355, p. 76ff.
17
Civil Procedure
1. The Code of Civil Procedure
The Code of Civil Procedure is the basic law on civil procedure. The Rules of
Civil Procedure enacted by the Supreme Court, which is vested with rule-making
powers by the Constitution, are also applicable.
The first Code of Civil Procedure was promulgated in 1890 during the first
period of codification. In 1926, it was substantially amended, using the Austrian
Code of Civil Procedure of 1895 as a model. Another major reform of civil
procedure took place after the Second World War. Some elements of the US pro-
cedure were introduced. Whereas the previous system relied heavily on the ini-
tiative of the judge rather than that of the parties, this second reform introduced
the adversarial system. Cross-examination of witnesses, in principle, replaced the
interrogation of witnesses by the presiding judge. However, the predominantly
Austro-German approach to civil procedure still remained.
The necessity for a major reform of the 1890 Code of Civil Procedure had
been felt for some years. First of all, the Code had remained more or less the same
since 1926 despite considerable societal and economic changes. The Code was
not suited to cope with the complexity and diversity of some modern types of dis-
putes such as those relating to product liability, medical malpractice, pollution,
intellectual property, etc. where there are a number of litigants involved, and
often an inequality of information and expertise between the plaintiff and the
defendant. Secondly, there is a common perception in Japan that litigation takes
too much time and is too expensive. The Ministry of Justice was concerned that
the number of lawsuits filed in the courts had fallen in the 1990s even below the
level in the 1930s while the number of disputes had certainly increased in the
meantime. It was assumed that this symbolised the growing unpopularity of the
judicial system amongst the general public. Measures to facilitate the access to
the system were therefore sought. Thirdly, in the US–Japan SII Talks in the late
1980s, various flaws of Japanese civil procedure, such as the absence of discovery
and insufficient measures to facilitate litigation by multiple parties, were pointed
out by the US side.
After five years of intensive work, a bill was submitted to Parliament and
became law in June 1996. The Code came into force on 1 January 1998. Since

410 Other Laws
then, the Code has undergone two major amendments—one in 2003 and the
other in 2004—as part of the Justice System Reform.
2. Jurisdiction
The plaintiff is required to file a claim in the court which has jurisdiction over
the case. The Code provides for a general forum and a special forum (Arts 4–7).
These do not contradict one another, but are concurrent. It is common for a
single claim to have several fora, and the plaintiff is entitled to choose the most
suitable one.
The general forum is determined by the place of residence in the case of an
individual, and for juridical persons and other entities, the location of its princi-
pal office or place of business. If the individual’s place of residence is not in Japan,
or is unknown, the forum is identified by the place of temporary residence. If this
is not in Japan, or unknown, the last place of residence determines the forum. As
for juridical persons and other entities, if there is no principal office or place of
business, the place of residence of the representative or other executives is decisive.
The general forum of foreign entities is determined by the location of the princi-
pal office or place of business in Japan, and if there is no such place in Japan, by
the place of residence of the representative or executives in Japan (Art. 4).
The Code also provides for various special fora (Art. 5). For proprietary claims,
the forum is the place where the obligation is to be performed. In tort cases, the
place of the tort is the forum. This can be either the place where the tortious
act has taken place, or where the result has emerged.¹ In claims against ship-
owners and users, the place of registration of the vessel is the forum. As for claims
involving real estate, the location of the property serves as the forum. It should
be added that proprietary claims against those who are not residing in Japan or
whose place of residence is unknown can be filed with the court with jurisdiction
over the place where the subject matter of the claim, the collateral, or the attached
property is located. In inheritance cases, the court which has jurisdiction over the
place of residence of the heir at the time of inheritance serves as a special forum.
Territorial jurisdiction can be altered by the agreement of the parties (Art. 11,
para. 1).
As part of the reform to facilitate the procedure involving intellectual prop-
erty rights, a provision which acknowledges Tokyo and Osaka district courts
as special fora in cases involving patent and utility model rights, and rights
in respect of layout of semiconductor circuits and works regarding computer
programmes, was introduced. By the 2003 amendment, the Tokyo and Osaka
district courts were given exclusive jurisdiction in such cases. These courts have
special departments and are equipped with judges and research officials with
¹ Judgment of the Kyoto District Court, 27 May 1965, Kaminshū 16-5-923.

Civil Procedure 411
expertise in such matters. Appeals against judgments of these courts are heard
exclusively by the Intellectual High Court, which is a special division of the
Tokyo High Court (Art. 6). In copyright cases (other than works on computer
programmes), design rights, neighbouring rights, etc., the Tokyo and Osaka
District Courts have concurrent jurisdiction with the court which has general
jurisdiction (Art. 6-2).²
3. The Capacity to be a Party, Standing, and

the Interest to Initiate an Action
Both individuals and juridical persons can be parties to litigation. In addition,
the Code provides that associations and foundations without juridical person-
ality can sue and be sued in their own name, provided that they have a repre-
sentative or a manager (Art. 29). The Supreme Court is of the view that such an
entity should have a managing body; decide matters by a majority vote; con-
tinue to exist despite changes of members; and have established rules concerning
representation, administration, and management. It acknowledged that an asso-
ciation (kumiai) which does not have juridical personality also has the capacity
to sue.³
Foreign individuals and juridical persons established in accordance with for-
eign law also have the capacity to be a party. When recognised by law or treat-
ies, they enjoy the same status as Japanese juridical persons. Foreign commercial
companies are recognised by the Civil Code (Art. 36, para. 1).
The capacity of foreign persons to act is determined by the law of their home
country. However, the Code of Civil Procedure provides that even where a
person lacks such capacity under the law of their home country, if Japanese
law so provides, such a person may be acknowledged to have such capacity
(Art. 33).
In contrast to German law, Japanese law allows parties to take part in the
proceedings without being represented by an attorney. Not only at the summary
court level, but even at the district court level, litigation without an attorney is
not uncommon. At the district court level, both parties were represented by an
attorney in only 56,334 out of 172,975 cases in 2007.⁴
Standing, that is the eligibility to pursue litigation as a party in relation to a
specific subject matter and to obtain judicial redress, is determined on a case-by-
case basis. Standing is granted to those who have a legitimate interest in the sub-
ject matter of litigation. It is generally acknowledged to those who are contesting
² For information on the Intellectual Property High Court in English, see <http://www.
ip.courts.go.jp/eng/index.html>.
³ Judgment of the Supreme Court, 18 December 1962, Minshū 16-12-2422.
⁴ http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DMIN20~25.PDF>.
412 Other Laws
rights under substantive law. In some cases, standing to sue is accorded to those
other than the holder of the rights. An example is the derivative action, in which
shareholders are entitled to sue directors on behalf of the company.
With the increasing awareness on the part of individuals of their rights in areas
such as consumer affairs and environmental issues, the insufficiency of the existing
system in enabling groups of people to assert such rights came to be realised. It was
also pointed out in the US–Japan SII talks that the difficulties faced by individuals
in pursuing their rights under the Anti-Monopoly Law or Financial Instruments
and Exchange Law have contributed to the lax implementation of these laws. The
adoption of the system of class action was suggested by the US side.
The 1890 Code did not envisage litigation by a group of individuals. The only
system which enables members of a group to avoid a joint action with all mem-
bers participating is the representative action (sentei-tōjisha-seido), which came
from English law. Under this system, a person or persons selected by the parties
acts as the litigating party on behalf of all other parties who share a common
interest. The parties must have both a claim and a defence in common. The party
who is to act on behalf of other parties must be chosen from amongst the parties.
Only the selected party (parties) acts in the proceedings and the others cease to
be a party (Art. 30, paras 1 and 2).
In a representative action, all parties have to be specified. This is in contrast to
class action in the United States where, at the time of the action, not all the parties
have to be specified, while the effect of the judgment may extend beyond the original
plaintiffs. Class action was in fact considered at the drafting stage of the present
Code, but little support was given to the introduction of such a uniquely American
system. On the other hand, the German system of Verbandsklage, which enables
organisations of consumers and the like to sue in order to protect consumer interests,
was studied. However, instead of introducing a system akin to the Verbandsklage, in
the 1996 Code the representative action system was modified. Now, even after the
litigation process has started, those who are not yet party to the proceedings but who
share a common interest may subsequently appoint the representative in the ongoing
proceeding to also represent their case in court (ibid., para. 3).
In order to initiate an action, the plaintiff must have a legitimate interest in
having the dispute settled by the court. The Law on Courts provides that the
court is to adjudicate upon any legal disputes (Art. 3, para. 1). These disputes
must involve specific rights and duties or legal relations. In some cases, the interest
which justifies litigation may be lost by lapse of time. For example, the Supreme
Court denied such an interest in a case where a shareholder sued the company to
seek rescission of a new issue of shares effected in violation of law, since the shares
had already been issued.⁵ In another case, litigation against the appointment of
directors was found to be without legitimate interest, because, at the time of the
litigation, those directors had already completed their term.
⁵ Judgment of the Supreme Court, 29 June 1965, Minshū 19-4-1045.

Civil Procedure 413
4. Preliminary Procedure
(1) Interim measures

Interim measures which are designed to secure the enforceability of the judgment
are provided by the Law on Civil Interim Measures.⁶ There are two types of such
measures: provisional attachment and provisional disposition. At the district
court level, such measures are used in almost half of all cases.
Provisional attachment is used in order to preserve the property at issue which
belongs to the debtor for securing a monetary claim. It is available when the
enforcement of judgment is likely to be impossible or extremely difficult without
attachment (Art. 20, para. 1).
An application for provisional attachment must be made to the court where
the property is located or the court in which the original claim is pending. The
application must specify: the parties and the representatives, the claim on which
the attachment is based, the reason why attachment is necessary, and the property
to be attached.
The court may order provisional attachment without a formal hearing. In most
cases, a provisional attachment order is issued on the basis of documentary evi-
dence and the oral questioning of the applicant. The debtor may file an objection
against the order, upon which the court may order suspension of the enforcement
of attachment provided that the debtor pays a deposit (Arts 26 and 27). In such
cases, a hearing has to be held.
Provisional depositions are used (i) to preserve disputed property and (ii) to
establish an interim legal relationship between the parties. Provisional dispos-
ition to preserve disputed property is a remedy for creditors who have a claim
against property or rights, and not monetary. This is different from provisional
attachment, in which the claim has to be monetary. For example, if the claim
is for the transfer of property and there is a possibility that the defendant will
dispose of it before the case is settled, the plaintiff may apply for a provisional
disposition and obtain an order prohibiting the defendant from disposing of the
disputed property.
Provisional disposition to establish an interim legal relationship is used to pre-
vent imminent harm to the plaintiff. The court temporarily grants the plaintiff
all or part of the relief sought as an interim measure. For example, if the plaintiff
is contesting the lawfulness of his dismissal from a company, the court may order
the company to let him retain his employment position until the case is finally
settled. In libel cases, the plaintiff may seek a provisional disposition to prevent
the publication of an allegedly libellous statement.
⁶ Law No. 91, 1989.

414 Other Laws
The procedure for an application for a provisional disposition is basically the
same as that for provisional attachment. In the application, the requested form of
disposition has to be specified. The major difference from provisional attachment
is that in a provisional disposition establishing interim relations, a hearing, or at
least oral questioning of the defendant is required (Art. 23, para. 4). Particularly
in provisional dispositions establishing interim legal relations, it can be difficult
for the defendant to contest the validity of the order once it has been granted. This
may mean that until final judgment, which may take several years to obtain, the
defendant remains in a disadvantageous position. Therefore, courts are cautious
of granting such orders.
(2) Preservation of evidence

Before filing a complaint with the court, parties may ask the court to examine
evidence, provided that there are grounds to believe that without such action,
the prospective use of the evidence would be difficult (Code of Civil Procedure,
Art. 234). The possibility of alteration of documentary evidence, such as clinical
records, may also serve as a ground for preservation. Preservation of evidence
before the submission of the complaint falls within the jurisdiction of the court
in the place of residence of the person to be questioned, of the person who holds
the document in question, or of the location of the thing to be examined.
(3) Interrogatories
Pre-hearing discovery of evidence was very much limited under the 1890 Code.
To a certain extent, the procedure for preserving evidence came to be utilised to
achieve the same goal as discovery.⁷
The 1996 Code introduced a system similar to that of interrogatories in the
United States. Parties are entitled to ask the opposite party in writing to clarify
within a reasonable period matters necessary for the contested issues, once the
complaint has been submitted to the court. Inquiries which are not specific or
concrete, those which are offensive or embarrassing to the opposite party, repeti-
tive inquiries, those asking for an opinion, inquiries which necessitate unreason-
able cost and time, as well as those where the opposite party has the right to
refuse testimony need not be answered (Art. 163). The opposite party is obliged
to respond, but there is no sanction against non-compliance.⁸
This procedure is applicable only after the complaint had been filed with
the court. This was perceived to be insufficient, and therefore, as a result of the
2003 amendment to the Code, a new procedure for the obtaining of evidence
⁷ M. Itoh, Minji-soshō-hō (Civil Procedural Law), 3rd edn (Tokyo, 2004), pp. 396–397.
⁸ See also Judgment of the Supreme Court, 11 June 1986, Minshū 40-4-872 (Hoppō Journal
case).
Civil Procedure 415
before the complaint has been filed was introduced. This is intended to enable the
parties to obtain information obviously needed for the hearing and, ultimately,
to facilitate the hearing and to make it focussed.
In order for the parties to obtain information needed for contesting the case
in court, the prospective plaintiff is entitled to make an inquiry in writing with
the prospective defendant on matters which are evidently needed for contesting
the case in the proceedings. This has to be preceded by a notice in writing of the
intention to file a complaint with the court. The inquiry must be made within
four months of the notice (Art. 132-2). The prospective defendant is equally enti-
tled to make inquiries of the prospective plaintiff, provided that he has responded
to the inquiry of the prospective plaintiff in writing (Art. 132-3). Either party
may refuse to provide information in cases of abusive requests, such as informa-
tion involving privacy or trade secrets. There is no sanction for non-compliance
with the request, but the fact that the given party failed to cooperate without a
justifiable ground may be taken into consideration in the procedure.⁹
The prospective plaintiff is also entitled to obtain evidence which is evidently
needed for his case and which is difficult to collect on his own via the court,
provided that he had notified the counter-party of his intention to sue. Upon the
decision of the court, the person who is in possession of the evidence is to submit
documents, report the outcome of the entrusted research, or present an opinion
in writing (Art. 132-4).
(4) Obtaining of documents

One of the major shortcomings of the 1890 Code was the difficulty in obtaining
evidence from the opposite party. The court was empowered to order the submis-
sion of documents, but its scope was limited. The Code provided that the posses-
sor of a document was under an obligation to submit documents to the court if
(i) the party in possession has made reference to it in the pleadings; (ii) the person
with whom the burden of proof lies has the right to request a document from the
possessor by virtue of substantive law to effect the delivery or inspection of the
document; or (iii) the document was prepared for the benefit of the person with
whom the burden of proof lies, or the document was prepared in connection with
the relationship between the possessor and such party.
Lower courts have endeavoured to interpret (iii) broadly.¹⁰ However, in a case
involving a claim by residents against the prefectural government for damages
resulting from a flood attributed to mismanagement of the river, the plaintiffs
applied for the submission of a report commissioned by the local government.
⁹ A. Onose and K. Takechi, Heisei 15 nen Kaisei Minji-soshō-hō (2003 Amendments to the Code of
Civil Procedure) (Tokyo, 2004), p. 38.
¹⁰ Decision of the Fukuoka High Court, 13 July 1977, Kōminshū 30-3-175 (Fukuoka Sumon
case).
416 Other Laws
While the district court issued the order, the High Court reversed the decision,
ruling that the aim of placing the parties on equal footing and ensuring a fair
and just result should be weighed and balanced against the prevention of unrea-
sonable harm to the possessor of the document. The court agreed that (iii)
should not be interpreted narrowly, but held that the document in question was
an internal one which had little relevance to the dispute.¹¹
The 1996 Code, as amended in 2001, introduced a general duty to produce
documents. A new paragraph was added which provides that the person holding
the document is not entitled to refuse submission of the document, if (i) the party
is in possession of a document which he himself quoted in litigation; (ii) the per-
son who owes the burden of proof is entitled to require the possessor to provide or
let him inspect the document; or (iii) the document was prepared for the benefit
of the person who owes the burden of proof, or was prepared regarding the legal
relationship between this person and the possessor of the document. In addition
to these grounds inherited from the 1890 Code there is a general duty to produce
a document unless (i) the document involves matters regarding which the obliga-
tion to refuse testimony in criminal procedure is not exempted; (ii) the document
involves official secrets of a government official and by its submission may harm
the public interest, or may substantially inhibit the execution of public duties; (iii)
the document is solely for the use of the possessor; or (iv) the documents consist of
records of criminal and juvenile procedure (Art. 220).¹²
If there is an application for the submission order of a document involving
official secrets, unless the application was apparently groundless, the court must
consult the administrative agency involved. If the agency considers the document
to be such that by its submission, the public interest is harmed, or it substantially
inhibits the execution of public duties, or the document was solely for the use
of the possessor, it has to give reasons. If the administrative agency’s opinion
cited (i) potential harm to national security, destruction of trust with a foreign
country or an international organisation, or disadvantage in negotiating with
them; (ii) obstruction of the prevention, suppression or investigation of crimes,
maintenance of prosecution, enforcement of punishment, and other forms of
maintenance of public security and public order, the court may order submission
of the document only when the opinion lacks a reasonable ground (Art. 223,
paras 3 and 4).
The Supreme Court acknowledged the submission order of the investigation
report of the labour standard inspector in a case involving an industrial accident,
but in another case, denied the duty to submit a document containing the calcu-
lation of compensation for the reclaiming of the sea.¹³
¹¹ Decision of the Tokyo High Court, 19 March 1979, Kōminshū 32–9/12–1391.

¹² Itoh, supra, pp. 372–382.
¹³ E. Sugiyama, ‘Bunsho-teishutsu-meirei ni kansuru Hanrei-riron no Tenkai to Tenbō
(Development and Perspective of Case Law Doctrine regarding the Order to Produce Documents)’,
Jurist, No. 1317, p. 97.
Civil Procedure 417
One of the flaws in the 1890 Code was the difficulty encountered by a party
applying for a document submission order in identifying and specifying the
document to be produced, particularly in the absence of full discovery. The 1996
Code provides that if the title and content of the document are extremely difficult
to specify, it is sufficient for the applicant to present facts which enable the posses-
sor to identify the document. In such cases, unless the application is groundless,
the court is empowered to order the possessor to disclose the title and content of
the said document (Art. 222, para. 1). When making the decision whether or not
to order submission of a document such as one that may involve official secrets,
the court may require the possessor of the document to show it to the court in
camera. At this stage the opposite party does not have access to the document
(Art. 223, para. 6).
The 1996 Code has strengthened the available sanctions against refusal to
produce a document. As a rule, if a party refuses to comply with a court order
to produce a document, the court may accept the assertion of the opposite party
concerning the content of the document as true (Art. 224, para. 1). The same
applies if the party (possessor) destroys the document or by other means makes
it unavailable. In these cases—if it is extremely difficult for the opposite party to
make specific assertions concerning the content of the document and to prove
the fact that the party intended to prove by this document with other evidence—
the court may accept the party’s assertion concerning the facts to be true (ibid.,
para. 2) . If the possessor of the document is a third party, failure to comply
with a court order is punishable by an administrative fine of up to 200, 000 yen
(Art. 225, para. 1).
(5) Preparatory procedures

The complaint submitted to court by the plaintiff has to specify the substance
of the claim and factual grounds for the claim. The judge who is assigned to
the case examines the complaint. At the initial stage, the complaint is examined
from a formal point of view and investigated to see whether it is properly formu-
lated. Then a copy of the complaint is served on the defendant. At the same time,
the defendant is informed of the date of the first hearing and asked to submit a
written reply to the claim. Parties are required to submit briefs in advance of the
hearing. These should include the matters which the party intends to contest at
the hearing.
One of the major problems in the civil procedure was the serious delay in
proceedings. The delay was partly attributed to the absence of an appropriate
procedure to identify contested issues and to sort evidence. New issues were often
raised at a very late stage and created further delays.
The 1890 Code provided for the possibility of an in camera preparatory
procedure in advance of formal hearings in order to clarify issues and identify evi-
dence. Issues not raised or evidence not presented at this stage were not allowed
418 Other Laws
to be presented at the formal hearing. However, it was not possible to hear witness
evidence in this procedure, since it was conducted in camera. Therefore, this
procedure was rarely used.
Influenced by the reforms in Germany and France, the court in Japan made
efforts to speed up the procedure and experimented with informal measures in
this respect. A practice of pleading-cum-settlement (benron-ken-wakai) developed
with the support of the Supreme Court. In this in camera procedure, the judge and
the parties get together at an early stage to narrow the issues and evidence and, if
appropriate, to explore the possibility of reaching a settlement.¹⁴
The 1996 Code sets out three different procedures for narrowing the contested
issues and identifying evidence. Firstly, there is the preparatory oral proceedings
(junbiteki-kōtō-benron) (Arts 164–167). This is part of the formal oral proceed-
ings and is conducted in open court if it is needed for identifying the issues and
the evidence. At the end of this procedure, the court confirms with the parties the
issues which are to be proved in the following proceedings. If a party later seeks to
raise issues not raised at this stage, this party is obliged to explain the reason for
the failure to raise the issue earlier.
Secondly, the Code has a procedure for the preparation of oral proceedings
(benron-junbi-tetsuzuki), which is based on a modification of the above-
mentioned practice developed by the court before 1996 (Arts 168–174). In con-
trast to the preparatory oral proceedings, this is not part of the formal hearing.
The court may conduct a preparatory oral hearing after consulting the parties, if
it considers it to be necessary. This proceeding is not entirely held in camera; both
parties are entitled to take part, and those persons whom the parties request must
be allowed to attend.
In this procedure, the court may order the parties to submit their preparatory
briefs, decide on the admissibility of evidence, and examine written evidence. It is
possible to conduct this procedure via a telephone conference system if the parties
live far apart. The parties may agree on settlement in this procedure. As with the
preparatory hearing, at the end of this procedure the court confirms the issues
which are to be proved in the subsequent proceedings. If a party then seeks to
raise issues not raised at the preparatory hearing, this party is obliged to explain
the reason for failure to raise that issue. The outcome of the pre-trial hearing is
presented by the parties at the formal hearing.
The third procedure introduced by the new Code is the preparatory proceed-
ings in writing (shomen niyoru junbi-tetsuzuki) (Arts 175–178). This is available
when the parties live far away. In this procedure, the issues are narrowed and evi-
dence sorted by exchange of pleadings and/or by communication via a telephone
¹⁴ N. Iwai, ‘The Judge as Mediator: The Japanese Experience’, Civil Justice Quarterly, 1992,
pp. 118–122. There was a fundamental criticism against this practice in that crucial issues are
decided in private, and this procedure may pre-empt formal hearings and infringe the right
of the parties to a public hearing. H. Inoue in the round-table discussion on the reform of civil
procedure in Jurist, 1991, No. 971, pp. 182–183.
Civil Procedure 419
conference system. There is no fi xed date for the session, but the court must set a
deadline for the submission of pleadings. After the completion of the successive
exchange of documents, the court confirms the issues to be proved in the follow-
ing proceedings. If a party then seeks to raise issues which were not raised at the
preparatory hearing, this party is obliged to explain the reason for failure to raise
that issue.
As a result of the 2003 amendment to the Code, a new provision which man-
dates the court and the parties to conduct the proceedings in accordance with a
plan was introduced (Art. 147-2). This was designed to achieve fair and speedy
examination of the case and was influenced by the UK Woolf Reform. The court
is under an obligation to prepare a plan for case management in complicated cases
where there are multiple matters to be examined, or where the matters involved
are complex (Art. 147-3, para. 1). The plan is to specify the period for the identi-
fication of the contested issues and evidence, the period for questioning witnesses
and parties, and the timing of the termination of the hearing and the rendering of
the judgment (ibid., para. 2).
These measures seem to have worked well, and the time needed for the procedure
has been substantially reduced (see Chapter 3).
5. Oral Proceedings
(1) The role of the court

The oral proceedings are conducted in open court, either by a single judge or by
three judges. Almost 95 per cent of cases at the district court level are heard by a
single judge.
Japanese judges often handle more than a hundred cases simultaneously. The
hearings are not held consecutively and the time allotted to each session is limited.
Usually there is on average one month’s interval between the sessions. Shortages
of judges and courtrooms are said to be the main reason for this.
The judge is more active in Japan than in Anglo-American jurisdictions.
Although the power of the judge has been reduced since the Second World
War, the judge still plays a key role in the hearing. The judge is entitled to ask
questions of the parties concerning legal as well as factual matters (‘the right of
elucidation’: Art. 149, para. 1). The court may encourage the parties to prod-
uce evidence (Art. 151). Failure to exercise this power may serve as a ground for
appeal.
Judges have been fairly active in exercising this power. In one case, the claim
of the plaintiff could not be made good unless he changed the legal basis of the
claim. The Supreme Court ruled that in cases where had the plaintiff based the
claim on different grounds, he would have won the case, but there has been some
misunderstanding or carelessness on his part in not doing so, the court should
420 Other Laws
exercise its power to clarify the matter and encourage the plaintiff to reconsider
the legal basis of the claim.¹⁵
The parties are free to dispose of the claim. The plaintiff may withdraw the
claim, or the defendant may acknowledge the claim. The parties may reach settle-
ment in or out of court. The judge is empowered by the Code to encourage the
parties to settle the case at any stage (Art. 89). Around 29 per cent of cases ended
with settlement at the district court level. A further 34 per cent were withdrawn;
a majority of these cases are presumably settled out of court.¹⁶
(2) Examination of evidence

The 1996 Code has introduced a major change to the rules governing the timing
of the raising of new issues and production of evidence. The 1890 Code pro-
vided that new issues could be raised and evidence produced at any time until the
end of the formal hearing. The 1996 Code provides that issues should be raised
and evidence produced at an appropriate time in accordance with the progress of
the proceedings (Art. 156). If, by intent or serious negligence, an issue is raised
or evidence produced belatedly, such issues or evidence may be rejected where
delay may be caused to the completion of the proceedings (Arts 157, 157-2). This
arrangement derives from the German system after the 1977 amendments to the
(German Code of Civil Procedure). Sanctions for non-compliance are provided,
but it is reported that the German court interprets this provision narrowly.
At the oral proceedings, the principles of oral hearing and directness apply.
However, the parties often rely on written pleadings and replies. The judge often
studies pleadings and other documents in chambers rather than in the court
room. Concerning the principle of directness, the judge who heard the case must
render the judgment. A change in the composition of the court is not unusual,
given the career judge system in which judges are rotated around different courts.
In such cases, the hearing has to start afresh, but the parties usually agree to use
the records of testimony prepared by the court. The Code also provides that if the
court finds it reasonable it may allow a party to present documents in lieu of an
oral testimony, provided that both parties agree (Art. 205).
A novelty introduced by the 1996 Code is the testimony and questioning
through audio-visual devices. When it is necessary to question witnesses who
live far away, the court may use devices such as video conference equipment (Art.
204). Details are to be provided by the Rules of Civil Procedure.
Before the post-war reforms, witnesses were examined by the judge and the
parties could only ask supplementary questions. As part of the post-war reform,
the system of cross-examination was introduced. However, in practice, the parties
are not always effective in questioning witnesses because of their lack of training
¹⁵ Judgment of the Supreme Court, 11 June 1970, Minshū 24-6-516.

¹⁶ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DMIN16~19.PDF>.
Civil Procedure 421
in cross-examination and their lack of information attributable to the absence of

discovery.
Examination of evidence overseas is to be entrusted to the competent author-
ity of that country or the ambassador, a minister, or consul of Japan posted in
that country. Examination of evidence which is against the law of that country
is nevertheless valid, unless it is not in breach of the Code of Civil Procedure in
Japan (Art. 184) (see Chapter 19).
Evidentiary rules in Japan are not as complex as those in common law coun-
tries. There is no restriction on the evidence which can be produced in court.
Admissibility of evidence, including hearsay, is left almost entirely to the discre-
tion of the court. This is said to be because in Japan professionally trained judges
handle the case instead of a jury.
The Code provides a right to refuse to testify if there is a possibility that the
witness or a person related to the witness such as a spouse or a relative would
be prosecuted or convicted as a result of that testimony. In addition, doctors,
dentists, attorneys, patent attorneys, notaries, etc., or those who formerly held
such positions, may refuse to testify on facts that they learned in the course of
their profession (Art. 196).
Concerning the testimony of government officials or former officials, the Code
provides that in order to question them on knowledge obtained in the course of
their duty, the authorisation of the relevant agency is required (Art. 191). The
Code provides that such authorisation shall not be refused unless it is contrary
to the public interest or significantly obstructs the carrying out of public duties
(ibid.).
(3) Protection of trade secrets at the oral hearing

One of the concerns of foreign parties about proceedings in Japan has been the
insufficiency of protection of trade secrets at trial. There was a celebrated case
involving a dispute between a US and a Japanese company over a breach of trade
secrets. In the proceedings in Japan, the US party chose not to specify the infor-
mation which it had claimed as a trade secret, fearing that once it was disclosed
in court it would cease to be protected. The court ruled in favour of the Japanese
party, since the US party failed to prove material facts.¹⁷
The Code acknowledges the right to refuse to testify about technical or profes-
sional secrets (Art. 197, para. 1). Secrets protected under the Code include secrets
whose disclosure would affect the company so seriously and significantly that
they have to be protected at the cost of fairness of the proceedings.
In 2004, the Patent Law was amended, and the court is now empowered to
conduct the questioning of a party regarding the trade secrets that this party
holds in camera by the unanimous decision of the judges in cases where an
¹⁷ Decision of the Osaka High Court, 12 July 1973, Kaminshū 24–5/8–455.

422 Other Laws
infringement of a patent is at issue. This applies where the disclosure causes sig-
nificant obstruction to the business of this party, and without the disclosure,
an appropriate judgment regarding infringement cannot be ascertained (Patent
Law, Art. 105-7). Furthermore, by virtue of the Patent Law and other acts involving
intellectual property rights, the court is empowered to order the parties not to
divulge trade secrets disclosed at the hearing.
The Code also provides for the possibility of restricting access to a court
record which contains significant secrets where third-party access would make it
difficult for the affected party to lead a normal social life, or where the record con-
tains trade secrets of a party, as defined by the Law against Unfair Competition
(Art. 92).
(4) Burden of proof

The burden of proof is often modified by presumptions, particularly in tort
cases. In a case where a group of consumers sued oil companies for damages
resulting from a cartel, the High Court ruled that if the raising of the wholesale
price based upon a cartel and the increase of the retail price within the chrono-
logical and geographical scope of the cartel are proved, then the causal links
between the cartel and the retail price increase are to be presumed, and the
burden of proof shifted to the defendant oil companies to prove that the retail
price had gone up for different reasons. However, this judgment was overruled
by the Supreme Court.¹⁸
The Code introduced a provision to the effect that where it has been
ascertained that loss has occurred, but by its nature it is extremely difficult to
determine the amount of damages, the court is entitled to determine its rea-
sonable amount, based on the result of the hearing and examination of all the
evidence (Art. 248). This provision is intended to alleviate the burden of proof
in such cases. There are similar presumptions of the amount of damage in intel-
lectual property law (see Chapter 15).
The principle of free evaluation of evidence, as opposed to the principle of
statutory evidence (Prinzip der gesetzlichen Beweisregeln) is accepted in Japan.
The court is required to consider the entire hearing and the result of its exam-
ination of the evidence, but is not bound by any rule in assessing the evidence.
However, the court must follow the rule of reason. The standard of proof does
not have to be that of scientific proof. The Supreme Court ruled in a medical
malpractice case that causal links do not have to be proved beyond all doubt,
but that it will suffice if there is a high probability that a specific result followed
a specific fact.¹⁹
¹⁸ Judgment of the Sendai High Court, Akita Division, 26 March 1985, Hanji 1147–19.
Judgment of the Supreme Court, 8 December 1989, Minshū 43-11-1259.
¹⁹ Judgment of the Supreme Court, 24 October 1975, Minshū 299-9-1417.
Civil Procedure 423
(5) Judgments and decisions

After the close of the oral proceedings, the court renders a judgment or a decision.
Judgments are rendered on the merits of the case, while decisions are given on
procedural matters.
6. Appeals
Judgments and decisions of the district court can be appealed to the High Court
and then to the Supreme Court (see Chapter 3). Concern has been voiced that the
Supreme Court is unable to concentrate on matters such as constitutional review
and the standardisation of the interpretation of laws due to its excessive case-
load. The 1996 Code introduced measures to reduce the burden on the Supreme
Court.
The Code provides that, as a matter of right, errors in interpretation and other
violations of the Constitution are grounds for a second appeal (jōkoku appeal)
(Art. 312, para. 1). The same applies when the composition of the court was
against the law; a judge who was not lawfully entitled to do so took part in the
judgment; there was a violation of rules concerning jurisdiction; representatives
lacked necessary authorisation; the hearing was not conducted in public; the
judgment lacked reasons or the reasoning contained contradictions (Art. 312,
para. 2).
In addition, a new system of petitions to the Supreme Court modelled on the
US writ of certiorari has been introduced. On petition, the Supreme Court may
accept cases in the exercise of its discretion if the judgment is contrary to prece-
dent or contains significant matters concerning the interpretation of laws and
ordinances (Art. 318, para. 1).
In 2007, 1,786 cases were appealed to the Supreme Court. In addition, the
Court accepted 2,083 cases by its discretion.²⁰
7. Enforcement of Judgments
The basic law which regulates the enforcement of judgments is the Civil
Enforcement Law.²¹ This covers the enforcement of judgments and interim meas-
ures, as well as the realisation of real security rights.
²⁰ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DMIN51~54.PDF>.
²¹ Law No. 4, 1979.
424 Other Laws
There are different enforcement procedures for monetary and non-monetary
claims. Furthermore, procedures for the enforcement of claims differ in accord-
ance with the object of enforcement, such as immovables, movables, and
other properties including claims against a third party. Ships are treated as
immovables.
The first step in the enforcement of monetary claims is attachment of the
property. In enforcement over movables, the bailiff takes possession of the object.
In enforcement over immovables and claims against a third party, the court
declares that the property in question is attached. The judgment debtor is forth-
with prohibited from disposing of the property. There is a risk that property
which belongs to a third party may be seized together with the judgment debtor’s
property. In such cases, the third party may file an objection.
The second stage is the procedure to convert the property into money. The
primary means of realising the property is sale by tender or auction. Concerning
immovables, it is possible to place the property under compulsory administra-
tion. The court appoints an administrator who manages the property, while the
owner is deprived of the rights to use and profit from it. The profits are paid to the
judgment creditor.
If the judgment debtor has a claim against a third party which is due, this can
be attached. The judgment debtor may not dispose of the claim, while the third
party is prohibited from repaying the debt to the judgment debtor. The judgment
creditor is entitled to collect the debt or to ask the court to transfer the claim
to him.
The realisation of non-monetary claims can take various forms. The judgment
ordering the party to transfer property can be realised by direct enforcement.
The court or bailiff seizes the property in question and hands it to the plaintiff. A
judgment which obliges a person to do something can be enforced by substitute
performance at the cost of the defendant. An obligation not to do something can
be enforced by indirect enforcement, i.e. the imposition of fines until the defendant
complies.
The agencies in charge of enforcing judgments are the court and the bailiffs.
The court has jurisdiction over immovables, claims, and other proprietary rights.
It also has jurisdiction over the enforcement of judgments obliging a person to do
or not to do something. The bailiff is an independent judicial agency who works
at the district court. The bailiff handles enforcement over movables as well as the
transfer of the possession of movables and immovables.
In order to initiate the enforcement procedure, the creditor must have an
enforcement title (saimu meigi). A title is an official document which certifies
the existence of a claim that is subject to enforcement. Agencies of civil enforce-
ment must determine the enforceability of the claim solely by its title. A title is
usually a court judgment in force. A court judgment which is yet to take effect
but has a declaration for provisional enforcement attached to it, as well as other
documents such as a notarised document in which the debtor voluntarily accepts
Civil Procedure 425
enforcement, are also titles (Art. 22). Judgments of a foreign court and foreign
arbitral awards also serve as title for enforcement (see Chapter 19).
In addition to the title, an enforcement clause which certifies the validity and
enforceability of the title is needed for enforcement. This is granted by a court
clerk or, in some cases, by a notary public. The Civil Enforcement Law also pro-
vides for the realisation of real security rights. In such cases, a title is not required
for enforcement.
8. Small Claims Procedure
At present, summary courts have jurisdiction over proceedings where the con-
tested amount is less than 1,400,000 yen. A simplified procedure is available for
summary courts to handle these legal actions, but the procedure still takes time
and is seldom used. Moreover, these courts are inundated with claims brought by
consumer credit companies against debtors.
The 1996 Code introduced a less complicated procedure for claims of 600,000
yen or less handled by the summary court. These disputes are still to be handled
by summary courts. Unless special circumstances exist, the hearing has to be
completed within one day (Art. 370). Counter-claims cannot be presented (Art.
369). Examination of evidence is simplified; testimony can be given without oath
(Art. 372, para. 1). Evidence to be examined is limited to that proof which can be
examined immediately (Art. 371).
The judgment is to be handed down immediately after the completion of the
hearing unless there are reasonable grounds not to do so (Art. 374, para. 1). The
court may, in acknowledging the claim, order that payment be made in instal-
ments over a three-year period, based upon the financial status of the debtor and
other circumstances (Art. 375, para. 1). No appeal is allowed against a judgment
rendered by this procedure (Art. 377).
The defendant may opt for the standard summary court procedure, but this
choice cannot be exercised once the defendant has appeared in the hearing or the
hearing has been completed (Art. 373, para. 1).
18
Criminal Law and Procedure
1. The History of Criminal Law
The primary statute on criminal law in Japan is the Criminal Code of 1907. There
are also separate laws which provide for specific crimes, generally designated
as ‘special criminal laws’, such as the Law on Misdemeanours, the Law on the
Prevention of Subversive Activities, the Law on Penalising Hijacking, the Law on
the Prohibition of Unlawful Access to Computers, and the Law on the Control
of Stalking.¹ There are also a number of laws which provide penalties for their
breach. The Company Law, the Financial Instruments and Exchange Law, the
Anti-Monopoly Law and many other laws contain penal provisions.
The Criminal Code is divided into the General Part and the Special Part. The
former lays down the general principles and basic concepts of criminal law such as
intention, negligence, attempt, accomplice, etc. The latter lists individual crimes.
General rules put forward in the General Part of the Criminal Code also apply to
special criminal laws.
The first comprehensive criminal code, enacted after the fall of the Tokugawa
Shogunate, was the Shinritsu-kōryō of 1869. This was primarily influenced by the
Chinese Ming and Ching codes, as well as the law of the Tokugawa Shogunate.
This was supplemented by the Kari-keiritsu in 1873. These statutes, however,
proved to be unsatisfactory for a country which aspired to achieve equal status
with Western European countries. Therefore, attempts to draft another code
based on a European model were made in the 1870s. This finally resulted in the
enactment of the Criminal Code of 1880. A French adviser, Gustave Boissonnade,
who is known for preparing the Civil Code, was in charge of the drafting process,
but the content of his draft was watered down in the last stages. Consequently,
although the Code was heavily influenced by the French Code, some influences
of German law can also be detected. It should be noted that the principle of nulla
crimen sine lege was first introduced to Japan by this Code.
The Code of 1880 was replaced by the current Criminal Code in 1907. In
contrast to the 1880 Code, the new Code was primarily based on German law.
A new school of thought in criminal law and criminology promoted by Italian
¹ Laws No. 39, 1948; No. 240, 1952; No. 87, 1974; No. 28, 1999; and No. 81, 2000.

Criminal Law and Procedure 427
and German scholars had emerged at this time in Europe and influenced those
involved in preparing the Code. This new theory laid emphasis on the socio-
logical factors that generate crimes and substituted the concept of rehabilitation
for that of retribution. Ever since the enactment of this Code, the influence of
German law and legal theory on the interpretation and study of criminal law has
been seminal.²
This Criminal Code was partly amended soon after the Second World War
in order to bring it into line with the present Constitution. Thus, crimes against
the Imperial Family were repealed as a result of the change in the status of the
Emperor. Espionage and other crimes which presuppose a state of war were
also removed from the Code. The newly endorsed principle of gender equality
necessitated the abolition of crimes such as adultery for which only the wife was
punished. Furthermore, with the increased guarantee of freedom of expression,
the provision which punished disruption of public peace and order was removed
and the provision regarding libel was amended. Under the present Code, if a
statement concerns a matter of public interest and was made for the benefit of the
public, the person who made the statement is not punishable if he proves that the
statement is true (Art. 230-2).
The move for a total amendment of the present Code began in the 1920s when
a programme for the reform of the Criminal Code was published. In 1931, a
‘provisional draft’ of the General Part was completed, followed by the Special
Part in 1941. This attempt to reform the Code failed mainly due to the outbreak
of the war.
In the mid-1950s the Ministry of Justice started work on a new criminal code.
A subcommittee on criminal law of the Legislative Advisory Council was com-
missioned to review the existing Code. It concluded that the Code should be
totally amended, and prepared a draft to this effect. This was approved by the
Council in 1974.³
The underlying tenor of the draft was the principal target for criticism.⁴ The
draft was based on the ‘provisional draft’ and had failed to take into account
the democratic changes which had taken place after the Second World War. It
was not surprising that the draft which was prepared in the pre-war period gave
priority to the maintenance of public security rather than the safeguarding of
individual rights. There was excessive emphasis on the ethical nature of criminal
law. Criminal law was considered primarily to be an instrument to maintain the
ethical standards of the people and to preserve traditional virtues. In contrast,
opponents of the draft regarded criminal law primarily as a device to protect citi-
zens against violations and infringements of their rights and interests. In their
² For the history of criminal law, see K-F. Lenz, ‘Penal Law’ in W. Rohl ed., History of Law in
Japan since 1868, Leiden 2005, S. 607ff.
³ K. Matsuo, ‘The Development of Criminal Law since 1961’, in D. Foote, Law in Japan: A
Turning Point (Tokyo 2007), pp. 312–314.
⁴ R. Hirano, ‘The Draft of the Revised Penal Code: A General Critique’, Law in Japan (1973),
vol. 6, pp. 49–64.
428 Other Laws
view, criminal law should refrain from interfering with ethics; after all, in this age
of pluralism, it was considered impossible to agree on ethical absolutes.
The draft’s overwhelming concern for public security was demonstrated by the
introduction of special ‘security measures’ for those who were found by the court
to be not guilty or only partly responsible on the ground of insanity. The draft
provided explicitly that these measures be applied when needed for the main-
tenance of public security. They were to be applied not in psychiatric hospitals
but in institutions under the jurisdiction of the Ministry of Justice. The term for
such measures was three years, renewable twice. For those who are highly likely
to commit a crime in respect of which imprisonment for more than two years is
applicable, there is no limit to the number of renewals. These measures were also
applicable to psychopaths.
It was generally agreed that the system of treating these offenders at that time
was not immune from flaws. However, the system proposed by the draft was
considered to have gone too far towards the maintenance of public security at the
cost of the rights of the mentally ill.
There was a general trend of overcriminalisation in the draft. In total, the draft
added more than twenty new crimes to the present Code, and increased the pen-
alties for a number of crimes. It incorporated various provisions in the chapter
on crimes against the interest of the State and increased the penalties for them.
Divulging of official secrets covered by the Law on Government Employees was
‘upgraded’ to the Code without due consideration of the effect that increased
penalties would have on the right to access to information. Abortion, seldom
punished despite the existence of a provision in the Code, still remained in the
draft and its scope was extended.
The draft was subjected to a crossfire of opposition. In the end, the idea of
the criminal law reform based upon this draft was abandoned. In fact, since the
1970s there has not been any attempt to amend the Criminal Code as a whole.
The 1907 Code still remains in force. Nevertheless, some changes were needed,
so these changes were introduced via piecemeal amendments over the years.
After the failure to enact a new Code, instead of partial amendments to the
existing Code, separate laws, such as the laws penalising hijacking, the taking
of hostages, unlawful organ transplant, child pornography, unlawful access to
computers etc. were enacted in order to accommodate new categories of crim-
inal offences.⁵ It should be noted that Japan has ratified the OECD Convention
on Combating Bribery of Foreign Public Officials in International Business
Transactions and accordingly introduced the offence of bribery of foreign public
officials by amending the Law against Unfair Competition in 1998. This Law was
further amended in 2004 in order to make the offence committed by a Japanese
national abroad punishable.
⁵ Laws No. 68, 1970; No. 48, 1978; No. 104, 1997; No. 52, 1999; and No.128, 2006.
Table 18.1 Number of reported cases, crime rate, and clearance rate for major offences
in five countries (1994–2003)
France Germany UK USA Japan
(1) Reported cases

1994 3,919,008 6,537,748 5,032,447 13,989,543 1,784,432
1995 3,665,320 6,668,717 4,885,944 13,862,727 1,782,944
1996 3,559,617 6,647,598 4,868,376 13,493,863 1,812,119
1997 3,493,442 6,586,165 4,460,599 13,194,571 1,899,564
1998 3,565,525 6,456,996 5,109,089 12,485,714 2,033,546
1999 3,567,864 6,302,316 5,301,187 11,634,378 2,165,626
2000 3,771,849 6,264,723 5,170,843 11,608,070 2,443,470
2001 4,061,792 6,363,865 5,525,024 11,876,669 2,735,612
2002 4,113,882 6,507,394 5,898,560 11,878,954 2,854,061
2003 3,974,694 6,572,135 5,934,577 11,816,782 2,790,444
(2) Crime rate
1994 6,783 8,038 9,845 5,374 1,425
1995 6,317 8,179 9,529 5,275 1,420
1996 6,110 8,125 9,470 5,088 1,440
1997 5,972 8,031 8,651 4,927 1,506
1998 6,072 7,869 9,878 4,620 1,608
1999 6,097 7,682 10,208 4,267 1,710
2000 6,421 7,625 9,917 4,125 1,925
2001 6,880 7,736 10,552 4,163 2,149
2002 6,932 7,893 11,220 4,125 2,240
2003 6,666 7,963 11,241 4,063 2,187
(3) Clearance rate
1994 34.9 44.4 26.4 21.4 43.0
1995 32.5 46.0 26.1 21.2 42.2
1996 30.2 49.0 26.5 21.8 40.6
1997 29.5 50.6 28.2 21.6 40.0
1998 28.7 52.3 29.3 21.3 38.0
1999 27.6 52.8 25.2 21.4 33.8
2000 26.7 53.2 24.4 20.5 23.6
2001 24.9 53.1 23.4 19.6 19.8
2002 26.3 52.6 23.6 20.0 20.8
2003 28.8 53.1 23.5 19.8 23.2
Notes: 1. Data compiled on fiscal year basis (from April to the next March) instead of calendar year basis for
the UK from 1998. Classification of crimes is changed. The new crime reporting standards were
adopted in 2002.
2. ‘Major offences’ for the US until 2001 refers to crime index offences excluding arson (estimate).
3. Figures for the US were based on statistics published in 2004, and the number of reported cases for
2002 was changed.
4. Latest demographic data available were used for the calculation of the crime rate. In particular,
data for the UK were compiled based on the revised demographical data for the period from 1992
(Annual Abstract of Statistics published in 2005).
5. The clearance rate for ‘Major offences’ for the US in 2003 was estimated based on the clearance rate
for violent crime and property crime.
430 Other Laws
Table 18.1 (Continued)
Sources: France: Aspects de la crimitalite et de la delinquasce constatées on France

Germany: Folizeiliche Kriminalstatistik
UK: Crime in England and Wales (Criminal Statistics England and Wales for data until 2000)
USA: Crime in the United States
Japan: Annual Report of Criminal Statistics on Police
Ministry of Justice, White Paper on Crimes, 2005, <http://hakusyo1.moj.go.jp/>
However, since 2001, the Criminal Code began to be amended frequently—

almost every year. In that year, the offence of reckless driving resulting in death
or injury was newly introduced by an amendment to the Code. In this area, later
in 2007, an offence of negligent driving resulting in death or injury was separated
from the offence of negligently causing death or injury, with the maximum pen-
alty being twenty years’ imprisonment. In 2004, the maximum penalty for mali-
cious and serious crimes was raised. As seen in the above table, Japan is known
for a low crime rate, but these developments reflect the growing intolerance of the
general public towards certain types of crimes resulting in the death of the victim.
Apart from these changes, an important development regarding criminal law
was the total transformation of the language of the Criminal Code in 1996.⁶
Previously, the language of the Code was classical literary Japanese, which has
become difficult for the general public to comprehend. Therefore, the Code was
totally rewritten in plain modern language. On this occasion, the provision on
patricide, which was found by the Supreme Court to be unconstitutional in 1973,
was finally removed from the Code.
2. Basic Rules of Criminal Law
Japanese criminal law is primarily based upon the German system. For an act
to be punishable, three basic requirements need to be met. An act constitutes
a crime when it coincides with the definition of a specific crime (Tatbestand), is
against the law (rechtswidrig), and is blameworthy (schuldig)7. As in Germany,
specialists of criminal law in Japan have endeavoured to work out a systematic
theory of criminal law incorporating these three requirements. This theoreti-
cal framework is designed to assist judges in deciding whether or not a specific
offender is punishable.
The doctrine of nulla crimen sine lege is acknowledged in Japanese law. It has
its basis in the Constitution, which guarantees due process of law (Art. 31) and
prohibits retrospective application of the criminal law (Art. 37). Thus, only laws
⁶ K. Matsuo and S. Shiono (eds) Rippō no Heiika (The Simplification of Legislation) (Tokyo, 1997).
⁷ See N. Nishida, Keihō-sōron (The General part of Criminal Law) (Tokyo, 2006), pp. 58–59.
enacted by the Diet (Parliament) may provide for punishment. There are two
exceptions to this rule: delegated legislation and local regulations.
As a corollary of this principle, the application of criminal law by analogy is
not allowed. Nevertheless, there are cases in which the court has interpreted the
provisions of the Code rather broadly. There was a celebrated case in the 1900s
where a person who had used electricity without permission was found guilty of
theft. Before this case, theft had to be of tangible things, but the court in this case
ruled that it sufficed if the object was controllable.⁸ Incidentally, when a similar
case came before a German court, the court acquitted the defendant.⁹ In a more
recent case, the court acknowledged that forgery of a photocopy was punishable
in the same way as forgery of the original document, thus extending the meaning
of ‘document’ to cover photocopies.¹⁰ A similar development can be seen in cases
involving bribery.¹¹ A former prime minister was prosecuted for accepting bribes.
The court interpreted the scope of power of the prime minister broadly and found
him guilty.¹² To this extent the doctrine of nulla poena sine lege has been modified
by case law.
Substantive due process requires that the definition of specific crimes should
not be vague. At least theoretically, the Supreme Court has recognised this
requirement, but there has been no case where it found a provision invalid because
of its vagueness.¹³
The fact that a given act coincides with the definition of a specific crime does not
necessarily result in punishment. A typical example is self-defence—a defensive
act against imminent and unlawful attack on the ‘rights’ of a person (Art. 36).
Another exemption is a legitimate act either based on the law or performed as part
of a legitimate business (Art. 35). For instance, industrial action may be regarded
formally as an obstruction of business by force, but is not punishable, since it is
made legitimate by the Trade Union Law insofar as it is carried out without vio-
lence (Art. 1, para. 2). An operation by a physician is not punishable as an assault,
since it is his legitimate business.
An act is punishable only when the person who committed the act had
mens rea, i.e. either had an intention to commit the crime or acted negligently.
Negligence is punishable only when there is an explicit provision. As a rule,
Japanese criminal law does not acknowledge absolute responsibility. There are,
however, two exceptions to this rule. First, there are provisions for vicarious
responsibility where a juridical person is held liable for the act of its employees.
Secondly, where the offender intended a certain act but the result of his action
8
Judgment of the Supreme Tribunal, 21 May 1903, Keiroku 9-14-874.
9
M. Maeda, Keihō kara mita Nihon (Japan Viewed through Criminal Law) (Tokyo, 1997), p. 58.
¹⁰ Judgment of the Supreme Court, 30 April 1976, Keishū 30-3-452.
¹¹ Maeda, supra, pp. 126–134.
¹² Judgment of the Supreme Court, 22 February 1995, Keishū 49-2-1 (Rockheed Marubeni Route
case).
¹³ For instance, see the Judgment of the Supreme Court, 23 October 1985, Keishū 39-6-413.
432 Other Laws
was more serious than he had expected, he may be held responsible for the result.
For instance, if A assaulted B, who died as a result of this attack, although A had
not intended to kill B nor had foreseen his death, A is still responsible for B’s
death. Such cases do not constitute homicide, but are punishable under another
provision (Art. 205).
The concept of negligence has been disputed in recent years. Negligence is
understood to be a breach of the duty of care. It is the content of this duty of
care which is the focus of controversy. One school of thought maintains that
negligence is punishable because of the failure to foresee the outcome of an act.
Another lays emphasis on the failure to avoid the outcome of the act. Even when
the outcome of the act could have been foreseen, this does not necessarily mean
that the person was negligent. There must have been a possibility to avoid the out-
come of the act, and only when the person proceeded to carry out an act entailing
an ‘impermissible risk’ can he be found negligent.
In addition to these theories, another theory of negligence has emerged. This
was partly a result of the serious pollution and corporate crimes since the mid-
1960s. This theory claimed that foreseeability of the outcome of one’s act was not
always necessary. In certain cases, a mere feeling of anxiety that a harmful result
might occur is sufficient to establish negligence. This theory was designed to cope
with situations where major corporations and senior executives managed to avoid
criminal responsibility while their low-ranking employees were held responsible.
In a case decided by a lower court a dairy company produced and sold dried
milk tainted with arsenic that resulted in the deaths of several children; the High
Court found the director of the plant responsible on the basis of this theory. The
court ruled that it was impossible for the employees to foresee that the raw materials
were tainted by arsenic, but found the defendant director guilty, since he must
have felt ‘anxiety’.¹⁴
However, this theory has been criticised since it may amount to absolute
responsibility and is not compatible with the basic idea underlying the present
Code. The judgment in the above-mentioned case is somewhat isolated and
recent judgments indicate that foreseeability is still required.¹⁵
If a person acted out of extreme necessity, even if the act is against the law, he
cannot be blamed and is not punishable insofar as the harm caused by the act
does not exceed the harm that he intended to avoid (Art. 37, para. 1). If the person
is insane, he cannot be held responsible for his act. Criminal insanity is defined
as the inability to distinguish right from wrong and act accordingly (Art. 39,
para. 1). The Code also provides for reduced penalties for those whose ability
to distinguish right from wrong and to act accordingly has been considerably
diminished (Art. 39, para. 2).
¹⁴ Judgement of Takamatsu High Court, 31 March 1963, Kōkeishū 19-2-136.

¹⁵ Nishida, supra, pp. 241–242.
Minors under 14 years of age are not held responsible for criminal actions
(Art. 41). Offenders who are under the age of 20 are covered by the Juvenile Law
and fall within the primary jurisdiction of the family court.¹⁶
The Criminal Code provides that if more than two persons jointly commit a
crime, they are joint principals (Art. 60). In addition, the Code provides for insti-
gators and aiders (Arts 61 and 62). Instigators are treated in the same way as the
principal, while penalties for aiders are less severe.
Whether it is possible to punish as a principal a person who did not actually
take part in the commission of a crime, but masterminded it and conspired with
the others is a matter of dispute. Originally it was thought that such a person
should be punished as an instigator. However, the court has developed case law to
the effect that such a person should be punished as a principal. In a case decided
in 1958, just such a person was prosecuted. The Supreme Court ruled that he was
a principal because he had used the acts of the others as an instrument to commit
a crime.¹⁷
The main penalties provided for by the Code are as follows: capital punish-
ment, imprisonment with compulsory labour, imprisonment without compul-
sory labour, and fines (Art. 9). Imprisonment can be for life, or for a maximum
of twenty years. There is controversy as to whether capital punishment should
be abolished altogether. Crimes punishable by death in Japan are limited to acts
such as homicide or those involving serious risk to human life.¹⁸
Despite criticism from abroad regarding the continuation of capital punish-
ment, the Japanese government has maintained that it should be kept. Indeed,
with the increasingly tougher stance of the general public against serious crimes,
the number of cases in which defendants are sentenced to capital punishment
and the actual rate of execution have increased in recent years. In 2007, twenty-
three persons were sentenced to death, while there were ninety-four persons on
death row.¹⁹
3. Specific Crimes in the Special Part of the

Criminal Code and other Laws
In total, the Special Part has around 180 provisions. The definition of each crime
is not necessarily as specific and descriptive as in the laws of some other coun-
tries. For instance, there is only one provision on homicide, which provides that
¹⁶ Law No. 168, 1948.

¹⁷ Judgment of the Supreme Court, 28 May 1958, Keishū 12-8-1718.
¹⁸ Concluding observations of the Human Rights Committee, Japan 2008 <http://daccessdds.
un.org/doc/UNDOC/GEN/G09/401/08/PDF/G0940108.pdf?OpenElement>
¹⁹ <http://www.e-stat.go.jp/SG1/estat/List.do?lid=000001031773>.
434 Other Laws
a person who kills another shall be punished by death, life imprisonment, or

imprisonment for more than three years (Art. 199). This is different even from
the German Criminal Code that served as a model for the present Japanese Code.
It was probably the influence of the new school of thought on criminal law and
criminology of the late nineteenth century which resulted in these simplified
provisions.
Crimes are classified in accordance with the nature of the interests that the law
intends to protect, for example, crimes against the interests of the State, crimes
against the interests of society, and crimes against the interests of individuals.
Originally, the Special Part of the Code began with crimes against the Imperial
Family, which were deleted after the War. The present Code starts with crimes
against the interests of the State—treason.
In recent years there has been a move to provide further protection for State
secrets. At present, the Code does not penalise the unauthorised divulgence of
such secrets. Instead, the Law on Government Employees and the Law on Local
Government Employees cover the unauthorised divulgence of official secrets. As
for military secrets, the Law on the Self Defence Force and a special criminal stat-
ute based upon the Mutual Security Agreement with the United States contain
penal provisions.²⁰
The government considered the present system inadequate and therefore
included new provisions in the 1974 draft criminal code. When it seemed
unlikely that the draft would be adopted, the government prepared a separate
draft on the law for the protection of State secrets. State secrets in this draft cover
military secrets as well as secrets touching on international relations which need
protection for the defence of the country. Punishable acts include handing over
official secrets to a foreign country, searching for and collecting such secrets, and
their divulgence.
This draft met with criticism from various quarters. First, it was not clear why
the present system was considered so inadequate as to warrant new legislation.
Secondly, the draft did not give due consideration to freedom of information
and the right of access to government information. The collection of information
by the media would be hampered by this draft. Thirdly, the definition of State
secrets in the draft was vague and likely to lead to an extensive application of
penalties. This is in contrast with the German Criminal Code, which has a pro-
vision exempting from protection as State secrets information concerning mat-
ters fundamental to the tenets of a democratic system (StGB 193). The draft was
submitted to the Diet as a bill in 1985 but failed to become law.
One of the salient characteristics of the Code is its leniency towards moral
crimes. Homosexuality has never been punishable. Abortion is punishable by
the Code, but another law enacted after the war made abortion for economic
reasons legitimate. Therefore abortion has been virtually decriminalised.
²⁰ Laws No. 120, 1947; No. 261, 1950; and No. 138, 1952.
Facilitating prostitution is covered by a separate law, but prostitution per se is not
an offence.²¹
Another issue which has been discussed in recent years is the concept of death
in criminal law. The Code does not have any provision on this matter. The issue
was raised by the first heart transplant operation in Japan in 1968. The donor
had been brain-dead for some time and was then declared to be clinically dead.
Some people questioned whether the donor was legally dead at the time of the
heart transplant. The Public Prosecutor’s Office conducted a thorough investi-
gation and found that there was no basis for prosecuting the physician for caus-
ing death by negligence. A government committee has accepted brain death as
a sufficient ground for a finding that death has occurred. In 1997 the Law on
Organ Transplant was enacted.²² This allows organ transplantation from those
who are brain-dead.
Protection of trade secrets is another issue which has attracted attention in
recent years. The present Code does not have a provision which deals directly with
industrial espionage. If an act involves industrial secrets embodied in a document
or a product, their transfer to a third party may be punishable as theft or embez-
zlement. However, when the act involves disembodied information, the applica-
bility of the Code is very limited. In 1988 this issue was raised in the US–Japan
bilateral negotiations on intellectual property. A new provision was introduced to
the Law against Unjust Competition in 1989 in order to make breaches of trade
secrets punishable (see Chapter 15).
Pollution has been a serious problem in Japan since modernisation and rapid
industrialisation began at the end of the last century. In the mid-1960s, as
Japan was achieving high economic growth, environmental pollution became
even worse. River pollution caused the deaths of inhabitants in several areas
and many people suffered from asthma in areas close to industrial sites. Against
this background, the draft criminal code initially included provisions on pol-
lution offences. Later, this part was separated from the draft and was adopted
as the Law on the Punishment of Pollution Offences against Human Health in
1970.²³
The Law punishes the intentional or negligent discharge of harmful substances
which endanger human life or health in the course of entrepreneurial activities
(Arts 2 and 3). The polluting company is punishable together with the actual
offender. The Supreme Court denied the applicability of this provision to a case
where a person mistakenly unloaded sulphamic acid into the wrong tank, and as
a result the local inhabitants suffered from the effects of chlorine gas. The court
ruled that this kind of accident should not be regarded as a negligent act in the
course of entrepreneurial activities under this Law. The defendant employee was
²¹ The Law on Prevention of Prostitution, Law No. 118, 1956.

²² Law No. 104, 1972. ²³ Law No. 142, 1970.
436 Other Laws
convicted by a provision of the Criminal Code, but the company was found not
guilty of violating the Law.²⁴
Organised crimes by gangsters (bōryokudan) are not uncommon in Japan. The
Law on the Prevention of Unjust Acts by Members of Gangster Organisations
was enacted in 1991, followed by the Law on Punishing Organised Crimes and
the Regulation on the Proceeds from Crimes in 1999.²⁵
4. Criminal Procedure
(1) Historical background

The first systematic Code of Criminal Procedure was the Code of Criminal
Instruction of 1880. This was based primarily on the French Code of 1808, but
some provisions came from German law. However, the system of courts and the
procedures provided by this Code proved to be too cumbersome, and the Code was
soon replaced by a new law which followed the German model. This in turn was
replaced by another Code in 1922, again patterned on German law.²⁶ Thus, crimi-
nal procedure in the pre-war period was entirely based on the civil law system.
Radical changes to criminal procedure were introduced after the Second World
War at the initiative of the Allied Forces. The Constitution incorporated a provi-
sion on due process of law, and guaranteed the right to defence and other related
matters in the Bill of Rights. This necessitated a fundamental reform of criminal
procedure. US advisers worked on the draft code of criminal procedure together
with Japanese academics, judges, attorneys, and officials. This work resulted in
the present Code of Criminal Procedure, enacted in 1948, which was basically
modelled on the US system. Due process of law is the underlying principle of the
present system. While the pre-war system was based upon the German ‘inquisi-
torial’ system, the current system is based upon the US adversarial system.
What is noteworthy is that, despite the overwhelming influence of US law on
the Code, some influence of German law can still be seen in its practice. This is
particularly evident in the process of investigation and in the reliance at trial on
written documents such as dossiers prepared by the police and public prosecutors,
rather than the testimony of witnesses in court.
(2) Pre-trial procedure

The first stage in the procedure is investigation. Investigation is conducted
by the police officers and public prosecutors. The pre-war system of the juge
d’instruction was abolished.
²⁴ Judgment of the Supreme Court, 22 September 1987, Keishū 41-6-255 (Daitō Tessen case).
²⁵ Laws No. 77, 1991 and No.136, 1999.
²⁶ S. Takayanagi, Nihon-hōsei-shi (Legal History of Japan), vol. 2, (Tokyo, 1965), pp. 289–293.
Under the present Code of Criminal Procedure, the primary responsibility for
investigation lies with police officers, while investigation by the public prosecutor
is supplementary (Arts 189 and 191, para. 1). When conducting an investiga-
tion, public prosecutors and police officials are expected to cooperate. The former
may issue general instructions and commands to the latter (Art. 193, para. 1).
Public prosecutors actively participate in the investigation stage. Almost all cases
investigated by police officers are sent to public prosecutors. In some cases, such
as corruption and corporate offences, public prosecutors themselves initiate the
investigation.
The Constitution provides that no one shall be apprehended except on the
basis of a warrant issued by a competent judicial officer (judge) (Art. 33). The
same rule applies to search and seizure (Art. 35). This requirement is designed to
place the power of police officers and public prosecutors under judicial control.
As for arrest, there are two exceptions to this rule. Firstly, no warrant is needed
when the suspect is caught red-handed (Art. 212). Secondly, if there is a sufficient
ground to believe that someone has committed a crime punishable by death, life
imprisonment, or more than three years’ imprisonment, he may be arrested with-
out a warrant, provided that there is no time to obtain one (Art. 210).
The suspect must be brought to the Public Prosecutor’s Office with documents
and evidence within forty-eight hours of arrest. If the public prosecutor finds that
the suspect should be detained, he is required to ask the judge to authorise deten-
tion within twenty-four hours (Art. 203, para. 1). Thus, it takes a maximum of
seventy-two hours for a suspect to be brought before a judge. Suspects have the
right to remain silent, which is guaranteed by the Constitution (Art. 38). The
suspect should be notified of this right as well as the right to counsel immediately
after his arrest (Art. 203, para. 1). If a defendant cannot afford defence counsel,
the State will assign one (Constitution, Art. 37, para. 3).
Previously, the latter right was available only after indictment. Since the stage
preceding indictment can be crucial, local Bars introduced the system of duty
attorneys in the early 1990s. Suspects who were detained were given an opportu-
nity to consult an attorney from a list of volunteer attorneys.
As a result of amendments to the Code of Criminal Procedure in 2004, sus-
pects who are detained have also become eligible for a defence counsel assigned
by the State. This is limited to those offences to which capital punishment, life
imprisonment, or a minimum of one year’s imprisonment are applicable, but
its scope is expected to broaden. In 2007, of the 70,610 persons who were sent
to trial, 69,515 had a defence counsel, of whom 15,928 had counsel from the
pre-indictment stage. 6,257 of them had a counsel assigned by the State.²⁷
The maximum period of detention prior to indictment is 10 days, renewable
once (Art. 208). There is no limit to the length of detention after being indicted.
Some defendants spend months awaiting trial. In 2007, out of 70,601 defendants,
²⁷ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DKEI23~24.pdf>.
438 Other Laws
57,822 were detained. 44,407 were detained for three months or less, but 13,039
were detained for a period of three months to one year. 736 were detained for
more than a year. Bail is available only after being indicted, and even then its
applicability is fairly limited. Only 8,982 were offered bail.²⁸
In practice, suspects are often detained in police custody, although they are
supposed to be detained in a prison. This practice of putting suspects and defend-
ants under the control of the police has been criticised in the UN Human Rights
Report.
Suspects and defendants held in confinement are guaranteed access to defence
counsel. They are entitled to consult a defence counsel or a person who is to be his
defence counsel without anyone else being present (Art. 39, para. 1). However,
public prosecutors and police officers may designate the time, place, and length
of interview for suspects, provided that this is necessary for the investigation
(Art. 39, para. 3). In the past, this provision was implemented in such a way
that the suspect’s interview with defence counsel depended on the permission
of the public prosecutor. Where the suspect did not admit guilt, interviews with
defence counsel were limited, sometimes to only twice in twenty days and for ten
minutes each time.
In 1991 the Supreme Court ruled that the above ‘necessity for investigation’
should be acknowledged, not only when the suspect is currently being inter-
rogated, but also when there is an imminent interrogation session scheduled
that would be unable to proceed if the consultation with the defence counsel is
allowed. On the other hand, the court pointed out that the prosecutor is obliged
to designate an alternative time for a meeting with the suspect and inform the
defence counsel. If the designation is excessivly unreasonable and speedy and free
access to defence counsel is inhibited, it would be unlawful.²⁹
During detention, suspects are interrogated by the police officers and public
prosecutors. Records of statements made before police officials and public pros-
ecutors are prepared for possible use at trial. Thus, detention often turns out to
be aimed at obtaining confession from the suspect, rather than being a system
designed to ensure that the suspect does not flee. The high rate of suspects and
defendants who admit guilt is worth noting: in 2007, only 1,249 defendants
contested their cases at trial.³⁰
Arrest and detention of a suspect for a lesser crime in order to interrogate him
about a more serious crime is not uncommon. This practice has been criticised by
academics and practising lawyers as a breach of Constitutional safeguards, but it
has not fully ceased to exist. The Supreme Court ruled that when there are suffi-
cient grounds to arrest and detain a suspect for a certain crime, it is permissible to
interrogate him for another crime closely linked to the first one.³¹ However, there
²⁸ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DKEI32.pdf>.
²⁹ Judgment of the Supreme Court, 10 May 1991, Minshū 45-5-919 (Asai case).
³⁰ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DKEI25.pdf>.
³¹ Decision of the Supreme Court, 9 August 1977, Keishū 31-5-821 (Sayama case).
are lower court decisions which have found such a practice to be illegal in some
other circumstances.³²
(3) Prosecution
Public prosecutors are the sole agency for prosecution, except in cases of manda-
tory prosecution proceedings. Japanese law does not allow private prosecution:
citizens may bring complaints to the police or public prosecutors, but cannot
prosecute on their own.
Prosecutors have a broad discretionary power to decide whether to prosecute
or not. The Code of Criminal Procedure provides that the prosecutor may refrain
from prosecution by taking into account the character of the offender, his age
and life history, the seriousness of the crime, other mitigating factors, as well as
circumstances after the crime—i.e. whether the offender has repented or paid
compensation, etc. (Art. 248). Prosecutors fully utilise this discretionary power.
In 2007, of the total 347,625 suspects, 102,993 were indicted. Among those
not prosecuted, charges were dropped in relation to 72,379 people on the basis
of Article 248.³³ Public prosecutors claim that, from a criminological point of
view, their use of this discretionary power contributes to the rehabilitation of the
offender and facilitates his correction by liberating him from the procedure at an
early stage.
However, this also has a negative aspect. Since prosecutors have to collect
information to decide whether to prosecute or not, based upon various factors,
the investigation tends to be thorough. Furthermore, since the prosecutor may
refrain from prosecution, if he is to prosecute he has to be fully convinced that
the offender is actually guilty. For this reason, the Japanese system is dubbed
‘minute justice (seimitsu shihō)’, as compared to the Anglo-American system. On
the other hand, once a person is prosecuted, there is a high probability that he will
in fact be found guilty. Indeed, the acquittal rate at trial is less than 0.1 per cent.
In 2007, only ninety-seven defendants out of 100,358 at the district court level
were acquitted.³⁴ It is pointed out that this system is neither US nor German, but
is uniquely Japanese.³⁵
The need to control the broad discretionary power of the public prosecutor was
acknowledged during the judicial reforms after the war. Two devices were intro-
duced. The first is the Prosecution Review Board, designed to review cases in
³² For instance, the Judgment of the Osaka High Court, 19 April 1984, Kōkeishū 37-1-98 (Kōbe
Matsuri case).
³³ <http://www.e-stat.go.jp/SG1/estat/GL02010101.do> See also D. H. Johnson, The
Japanese Way of Justice: Prosecuting Crime in Japan (Oxford, 2002).
³⁴ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DKEI08~10.pdf>.
³⁵ O. Ikeda and M. Maeda, Keiji-Soshō-Hō-Kōgi (Lectures on the Criminal Procedure Law), 2nd
edn (Tokyo, 2006), p. 28. The term was first used in K. Matsuo, Keiji-soshō-ho Law of Criminal
Procedure) vol. 1 (Tokyo 1979), pp. 15–16.
440 Other Laws
which the prosecutor decided not to prosecute.³⁶ Boards are composed of eleven
citizens selected at random, who serve on the board for one year. There are around
160 boards throughout Japan. The board may initiate review proceedings either
upon request by citizens or on its own initiative.
Prosecution review boards are empowered to require that the prosecutor submit
materials and provide explanations. It may also summon the persons who initiated
the proceedings and other involved parties. The board may render a decision that
the prosecutor should prosecute the offender, or investigate further.
The competence of a board is narrower than that of a US grand jury. Boards
themselves do not have the power to prosecute, and their decisions are not bind-
ing on the prosecutor. Moreover, a board is entitled to review the decision of
prosecutors not to prosecute, but has no power to review their decision to prose-
cute. An amendment to the Law on Prosecution Review Board of 2004, however,
grants the board the power to compel the prosecutor to prosecute, if the board
had recommended that the case should be prosecuted, but the prosecutor failed
to comply, and the board made the recommendation for the second time. This
mechanism is to be introduced by 2009.
The second device to check the discretionary power of the public prosecutor,
though limited in scope, is the proceedings to remand to trial cases involving
abuse of power by government officials. If the person who brought a complaint
or accusation of abuse of power by government officials is not satisfied with the
prosecutor’s decision not to prosecute, he may apply to the court to initiate pro-
ceedings to remand the case for trial. If the court finds the application to be
valid, the prosecution is deemed to have been initiated without the involvement
of the public prosecutor. At the trial, an attorney specially designated by the court
performs the function of the public prosecutor (Arts 262–270).
(4) The trial

As a result of the indictment, the case is brought to the court of first instance. In
most cases this will be a summary court or a district court. No evidence or docu-
ments may accompany the indictment, since this could prejudice the impartiality
of the judge (Art. 256, para. 6). More than 90 per cent of cases are handled by a
single judge.
At the beginning of the trial, after the public prosecutor reads out the indict-
ment, the presiding judge asks the defendant whether he admits his guilt or not.
Since Japan has not adopted the US arraignment procedure, even if the defend-
ant admits his guilt the evidence has to be examined.
Trials are not held in one sitting. There is usually a one-month interval between
each hearing. Defendants who admit their guilt are handled in a fairly short
period, while in contested and complicated cases, especially where more than one
³⁶ Law No. 147, 1948.

defendant is involved, the court can take years to reach a conclusion. On aver-
age, it takes three months to go through the procedure at the first instance court.
In cases where the defendant has admitted guilt, the average time needed is 2.6
months; but in contested cases, it takes 8.5 months and 6.8 sessions.³⁷
The defendant has a constitutional right to be assisted by counsel. This right
can be waived; but in cases where the death penalty, life imprisonment, or impris-
onment exceeding three years can be imposed, the presence of defence counsel is
mandatory (Art. 289, para. 1).
The trial is adversarial in character, in contrast to the ‘inquisitorial’ mode under
the previous Code, in which the judge plays a major role. The parties, instead of
the judge, take the initiative in producing and examining evidence. Under the
pre-war Code, the judge interrogated witnesses; interrogation of defendants by
the judge was also allowed. The present Constitution guarantees the right of the
defendant to examine all witnesses; as a corollary, hearsay evidence is not allowed
in principle (Art. 37, para. 2). Accordingly, the Code has introduced the system
of cross-examination (Art. 320, para. 1).
However, this new system introduced by the present code did not function
exactly as expected. The Code provides for various exceptions to the hearsay rule.
The Code provides for various exceptions to the hearsay rule. For example, a
statement in the presence of the public prosecutor which in substance contradicts
this person’s subsequent statement at trial is permissible, provided that there are
circumstances that give the earlier statement more credibility than the latter (Art.
321, para. 1, subpara. 2).
Because of the relaxed standards for the admissibility of hearsay evidence,
statements made by the defendant and witnesses in the course of the investiga-
tion play a crucial role at trial. The trial is conducted mainly on the basis of doc-
umentary evidence, rather than on fresh testimony from the witnesses. At the
district court level, out of 70,610 defendants, witnesses were heard in relation to
40,464 defendants; but in relation to 33,807 defendants, only one witness gave
evidence.³⁸
It is common practice that written statements prepared at the pre-trial stage
are not read out in court. Only summaries are given, and even this is often dis-
pensed with. This heavy reliance on documentary evidence is in a way inevitable,
since cases are not held in one uninterrupted session and can last more than a
year. It is likely that the memories of witnesses will fade. However, this makes the
investigation stage the most crucial part of the criminal procedure and pre-empts
the significance of trial.³⁹
³⁷ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DKEI19.pdf>
³⁸ <http://www.courts.go.jp/sihotokei/nenpo/pdf/B19DKEI28~29.pdf>.
³⁹ R. Hirano, ‘The Diagnosis of the Japanese Criminal Procedure’, Law in Japan, vol. 32, 1989,
p. 129.
442 Other Laws
The court has a free hand in evaluating evidence (Art. 318). As an exception,
a person shall not be convicted if the only evidence against him is his confession:
corroborative evidence is then required (Art. 319, paras 2 and 3).
(5) Judgments and sentencing

There is no separate procedure for sentencing. Evidence produced to prove guilt
is also taken into account by the judge in determining the sentence. The scope of
discretion given to the judge in sentencing is broad. For instance, for homicide
the judge can impose the death penalty, life imprisonment, or imprisonment of
between three and fifteen years.
(6) Appeals
Appeal to higher courts is allowed for both the defendant and the prosecu-
tion. The first appeal—kōsō—is to the High Court in most cases. The primary
grounds for a kōso appeal are: non-compliance with procedural law, errors in
the application of the law, errors in fact-finding which apparently affected the
judgment, and inappropriate sentencing (Arts 379–382). The kōso appeal is
not a de novo procedure: it is designed to review the judgment of first instance,
but in exceptional cases it may involve the examination of witnesses and other
evidence.
The second appeal—jōkoku—is to the Supreme Court. Jōkoku is allowed on
the grounds of violation of the Constitution, erroneous interpretation of the
Constitution, and conflict with the precedents of the Supreme Court (Art. 405).
In addition, the Supreme Court has discretion to accept an appeal if the case
involves matters significant to the interpretation of law (Art. 406).
19
International Relations
1. The Law on Nationality
The basic law concerning nationality is the Nationality Law of 1950. This law
was substantially amended in 1984 in order to meet the requirements of the
Convention on the Elimination of All Forms of Discrimination Against Women,
which Japan ratified in 1980.¹
A person is a Japanese national if (i) at the time of birth, either of the parents
is a Japanese national, (ii) the father who died prior to the birth of the child was
a Japanese national, or (iii) the child was born in Japan and both parents are
unknown, or are without any nationality (Art. 2). Japanese nationality can be
obtained by legitimation or naturalisation.
Before the 1984 amendment, the Law provided that if the father was a
Japanese national at the time of the birth of the child, the child should be a Japanese
national. However, this did not apply to cases where the mother was a Japanese
national but the father was not. Therefore, if a Japanese man married a foreign
woman the child was entitled to Japanese nationality, while if a Japanese woman
married a foreign man the child was not entitled to Japanese nationality. This
was considered to be unfair and also inconvenient, since if the father’s home
country adopted the principle of jus soli the child would be without national-
ity. In one case, the child of a Japanese woman who married a US national was
refused registration because of the lack of nationality. The district court rejected
the argument that the provision of the then applicable Nationality Law was
against the equal protection clause of the Constitution.² The Law was amended
in 1984 in this respect and the differential treatment of the sexes was abolished.
The present Law provides for jus sanguinis for both the paternal and maternal
lines (Art. 2).
Japanese nationality can be obtained by legitimation. An illegitimate child
does not acquire the status of a legitimate child via the marriage of the father and
mother. A separate act of recognition by the father is required. When legitimated,
a child under the age of 20 acquires Japanese nationality, provided that either the
¹ Law No. 147, 1950.

² Judgment of the Tokyo District Court, 30 March 1981, Hanji 1363–68.

444 Other Laws
father or mother who recognised the child was a Japanese national at the time of
the birth of the child, and that they are either still a Japanese national, or were a
Japanese national at the time of their death (Art. 3, para. 1).
In 2008, the Supreme Court found this provision to be in a ‘state of unconsti-
tutionality’. In this case, a child who was born to a Japanese father and a Filipina
mother applied for Japanese nationality on the grounds of this provision, but
was rejected. The Supreme Court pointed out that this provision in effect was
only applicable to a child who was recognised by a Japanese father who did not
marry the foreign mother. This is in contrast to a child who was recognised by the
Japanese father while in the womb, or an illegitimate child of a Japanese mother,
both of whom are entitled to Japanese nationality. The Court found that there
had been a reasonable ground for the legislative purpose at the time of the enact-
ment of the Law, but that the reasonable connection with this purpose has been
lost in light of the changes of the social environment inside and outside Japan.
The differential treatment has caused excessively disadvantageous and discrimin-
atory treatment to such children. The Court found this to be against Article 14,
para. 1 of the Constitution as an unreasonable discrimination.³
The Law also provides for naturalisation as a ground for the acquisition of
nationality. Naturalisation is subject to the permission of the Minister of Justice.
The Law sets out minimum requirements for naturalisation. The applicant must
have been resident in Japan for more than five years without interruption, must
be twenty years or more of age, and have legal capacity under the law of their
home country. The applicant must demonstrate ‘good behaviour and character’;
that he or she is able to provide for himself or herself (including the possibility
of being supported by the skills or assets of the spouse or relatives who live with
him or her); is either of no nationality, or will lose foreign nationality by acquir-
ing Japanese nationality; and has never plotted or advocated the overthrow of the
Japanese Constitution or the government formed under it, or taken part in such
an organisation (Art. 5, para. 1).
For those who have special links with Japan, the requirements are relaxed.
Thus, the spouse of a Japanese national who has a residence or a place of sojourn
in Japan for not less than three years without interruption and at present has a
residence or a place of sojourn in Japan may acquire Japanese nationality. The
same applies to a person who has been married to a Japanese national for not less
than three years and has been domiciled in Japan for one year or more (Art.
7). Furthermore, a child of a Japanese national who is domiciled in Japan may be
naturalised in a similar way (Art. 8).
Persons with dual nationality are required to choose one nationality within
two years. If this person is under 20, he or she is obliged to choose the national-
ity before reaching twenty-two (Art. 14, para. 1). The choice is made either by
renouncing one nationality, or by declaring the choice of Japanese nationality
³ Judgment of the Supreme Court, 4 June 2008.

International Relations 445
and renouncing the foreign nationality (ibid., para. 2). This declaration is made
by filling in a form provided by the civil registration department of the relevant
local authority.
A Japanese national who was born in a foreign country and has acquired
foreign nationality by birth needs to declare to maintain Japanese nationality.
Otherwise, the child will lose Japanese nationality. However, this person may
recover Japanese nationality if he or she is under twenty and is resident in Japan,
by filing a notice with the Minister of Justice (Arts 12 and 17).
2. The Status of Aliens
(1) Immigration Law

It is generally accepted that the protection of rights and freedoms under the
Constitution extends to foreign nationals resident in Japan insofar as the nature
of the given right allows it (see Chapter 5).⁴
The legal status of a foreigner depends on whether this person is a permanent
resident.⁵
Immigration control is implemented on the basis of the Law on Immigration
Control and Recognition of Refugees.⁶ The Law was originally enacted as a cab-
inet order in 1951, but was granted the status of law the next year.⁷ With the
ratification of the Convention on the Status of Refugees in 1981, the title was
accordingly changed. Thus, the Law covers both immigration control and the
procedure for the recognition of refugees. Registration of aliens is regulated by
the Aliens Registration Law of 1952.⁸
Foreign nationals who intend to enter Japan must have a valid passport, and
unless exempted, a visa. Japan has a mutual arrangement of exemption for visas
with more than 50 countries. Grounds for refusal of entry include those who may
be a financial burden to the State, such as those who cannot fend for themselves,
those who have been sentenced to a term of imprisonment of one year or more
for a breach of law, those convicted of drug offences, those expelled from Japan
within the last year, and those who intend to harm the constitutional order of
Japan, or are likely to act against the interest of Japan and harm public security
(Art. 5).
Foreign nationals who intend to stay in Japan are required to obtain a quali-
fied legal status for residency. The Law lists twenty-seven categories of activities
⁴ Judgment of the Supreme Court, 4 October 1978, Minshù 32-7-1223 (McLean case).
⁵ For a comprehensive list of application of Japanese legislation to foreign nationals, see K. Tezuka,
Gaikokujin to Hō (Foreigners and the Law), 3rd edn (Tokyo, 2005), pp. 374–378.
⁶ For English translation, see <http://www.cas.go.jp/jp/seisaku/hourei/data/icrra.pdf>.
⁷ Law No. 268, 1952.
⁸ Law No. 125, 1952.
446 Other Laws
including diplomatic activities, official governmental activities, teaching, study,
entertainment, art, religious activities, investment and management, legal and
accounting, medical, research, engineering, etc. A short-term stay of fifteen or
ninety days is possible. For categories provided in lists Nos. 1 and 2, foreign
nationals are entitled to work within the scope of qualification, whereas in cases
such as short-term stay or sojourn for study, they are not permitted to work. In
cases where a foreign national is entitled to work under this qualification system,
this person may apply for a work certificate.
Those who intend to enter Japan may apply to the Minister of Justice for a
certificate of qualification for sojourn. One of the categories of qualification for a
stay is permanent residency. Foreign nationals cannot apply for permanent resi-
dent status from overseas. Permanent resident status can only be obtained after
foreign nationals enter Japan under a different status.
There are around 446,000 Korean and Taiwanese people who have been
resident in Japan since before the Second World War and their descendants.
The status of these people is determined by the Special Measures Law on the
Immigration Control of Those Who Lost Japanese Nationality by Virtue of the
San Francisco Peace Treaty (‘special permanent residents’).⁹
In 2007, there were 2,152,973 foreigners registered in Japan (excluding special
permanent residents). This comprises 1.69 per cent of the entire population. The
highest in number are the Chinese, 606,899, followed by Koreans, 593,487, and
Brazilians, 316,967.¹⁰
The Minister of Justice is empowered to grant permanent resident status if
the applicant has demonstrated good behaviour and has sufficient assets or skill
to lead an independent life. The status is granted only when the permanent res-
idency of the person in question is in the interest of Japan (Art. 22, para. 2).
In cases where a child or spouse of a Japanese national, permanent resident, or
special permanent resident under the Special Measures Law applies for perma-
nent residency, the requirements of good behaviour and sufficient assets or skills
to lead an independent life are waived.
Foreign nationals residing in Japan are under an obligation to register. For this,
the applicant was previously required to be fingerprinted, except for a sojourn
of less than a year. This was not limited to first-time registration, but extended
to renewal of previous registration. After a series of court cases contesting the
constitutionality and compatibility of this requirement with the Human Rights
Convention, the requirement has been gradually relaxed. Fingerprinting was
abolished altogether in 1999.¹¹ However, it was reintroduced for entry into Japan
in 2007 as part of the amendment to the Immigration Control and Recognition
of Refugees Law for the reinforcement of attempts to combat terrorism.
9
Law No. 71, 1991, <http://www.moj.go.jp/NYUKAN/nyukan67-2.pdf>.
¹⁰ <http://www.moj.go.jp/PRESS/080601-1.pdf>.
¹¹ Nikkei, 21 May 1999.
The concept of refugees is defined in the Convention on the Status of Refugees.

Displaced persons do not qualify as refugees. Foreign nationals who desire to be
protected as refugees must apply within sixty days of entry into Japan. It is not
possible to apply for refugee status from overseas. The decision is made by the
Minister of Justice.
(2) The status of foreign juridical persons and other entities

The Civil Code provides that foreign juridical persons except for a State, admin-
istrative divisions of a State, and commercial companies are not recognised in
Japan (Art. 36, para. 1). As a corollary, foreign companies with juridical per-
sonality are recognised in Japan without any specific procedure. Companies
recognised by this provision enjoy the same rights as companies of a similar type
established in Japan. However, this does not apply where it involves rights which
cannot be exercised by foreign entities or in cases where there are special provi-
sions in the law or treaty (Art. 36, para. 2). There are some restrictions on the
activities of foreign companies. For example, the Law on Mining provides that
no one except a Japanese national or juridical person is eligible for mining rights
unless an international treaty provides otherwise (Art. 17).¹²
The Japan–US Friendship and Commerce Treaty provides for the national
treatment of foreign investors. The Treaty allows restrictions by the host country
on the entry of foreign investors into businesses handled by public utilities, as
well as in banking, shipping, airline businesses, and the development of natural
resources.
There may be a problem with partnerships in Anglo-American jurisdictions
that do not have juridical personality. The above-mentioned provision of the
Civil Code does not make a foreign non-juridical person a juridical person in
Japan. They will be treated as associations without juridical personality. As such,
they are entitled to sue and be sued and to effect transactions in the name of the
partnership. One disadvantage is that they are not entitled to register property in
their name.
The Company Law defines a foreign company as a foreign juridical person
or other organisation established under a foreign law, and which is identical or
similar to a company (Company Law, Art. 2, subpara. 2).
If a foreign company intends to do business on a continuous basis, it has to
appoint representatives in Japan, of which at least one must have an address in
Japan. The representative in Japan has the power to effect all judicial and extra-
judicial acts regarding the business of the company (Art. 817).
Foreign companies are not allowed to do business on a continuous basis in
Japan until their registration. If a person effected a transaction without regis-
tration, this person is jointly and severally liable with the foreign company
¹² Law No. 289, 1941.

448 Other Laws
(Art. 818). Registered foreign companies must publicise their equivalent of a
balance sheet (Art. 819, para. 1). Foreign companies whose main place of busi-
ness is in Japan, or whose primary purpose is business in Japan, may not effect
transactions on a continuous basis in Japan (Art. 821, para. 1).
3. Foreign Exchange and Foreign Trade Law
(1) Liberalisation of the foreign exchange control

Foreign exchange control in Japan started with the Law on the Prevention of
Capital Flight which was enacted in 1932. Movement of capital was strictly regu-
lated under this Law. This was the time of a world-wide depression, when there
was large-scale capital flight from Japan. This Law was replaced by the Foreign
Exchange Control Law in the following year to cover current transactions in
addition to capital transactions. After the Second World War, a new Foreign
Exchange and Foreign Trade Control Law was enacted.¹³ The goal of this Law
was to ensure the balance of payments and the stabilisation of the currency, and
to contribute to the sound development of the Japanese economy. It prohibited
international transactions such as payments to overseas recipients and payments
between residents and non-residents in principle, but allowed certain transac-
tions as exceptions. These were listed in cabinet orders or ministerial ordinances,
and were subject to approval by the then Minister of International Trade and
Industry.
Liberalisation of the regulations was discussed in multilateral fora such
as the IMF and OECD, as well as in some bilateral negotiations in the 1960s.
Accordingly restrictions, including those on capital transactions, were gradually
lifted.
In 1980 the Law was totally amended. While in the past transactions between
residents and non-residents were banned in principle and allowed only as excep-
tions, this was reversed by the 1980 amendment. The amended Law declared that
foreign exchange, foreign trade, and capital transactions were basically free from
restrictions and that only minimum necessary control and adjustments were to be
exercised. Although the 1980 amendment was claimed to be a major step towards
liberalisation, there were some doubts. It was pointed out that the amendment fell
short of a total restructuring, since broad discretion was given to the ministries
in creating specific exceptions to the general permissive principle. Much of its
implementation was left to cabinet orders, ministerial ordinances, and circulars
and notices. Capital transactions were either subject to approval, or had to be
notified in advance. Some of these exceptions have gradually been lifted in recent
years. However, overall the Law was still complicated with various exceptions
¹³ Law No. 228, 1949.

provided by sub-laws, and was regarded as highly restrictive by the business com-
munity. This over-regulated system was blamed for the shift of businesses from
Japan to foreign financial markets.
The Law was substantially amended in 1997 as part of the financial ‘big
bang’.¹⁴ The term ‘control’ was dropped from the title of the Law; it is now
called the Foreign Exchange and Foreign Trade Law. The overall goal of the
amendment was the liberalisation of outward transactions and foreign exchange
business. In general, the system of prior approval was replaced by a system of
contingency control. This means that the minister in charge may introduce such
requirements as a contingency measure, but in normal times post facto reporting
is sufficient.
The minister is empowered to require, based on a cabinet order, that certain
payments by residents to non-residents be subject to approval in cases where it
is necessary for enforcing international agreements to which Japan is a party,
as well as in cases where it is particularly needed for maintaining the interna-
tional balance of payments (Art. 16, paras 1 and 2). In capital transactions, such
requirements may be introduced by the Minister of Finance if, inter alia, the
maintenance of international payment becomes difficult, resulting in extreme
fluctuation in the foreign exchange market, or the financial or securities market
is to be negatively affected by the flow of funds on a large scale (Art. 21, paras 1
and 2).
By the 1997 amendment, the requirement of licences for foreign exchange
business and foreign currency exchange was dropped. The system of designated
securities companies was totally abolished. It is expected that with the amend-
ment there will be some new entries—mainly by securities companies—into the
foreign exchange business.
The Foreign Exchange and Foreign Trade Law covers the following transactions;
(i) payments, (ii) capital transactions, (iii) direct outward investment, (iv) service
trade, (v) direct inward investment, and (vi) foreign trade.
(2) Payments
Even before the 1997 amendment, cross-border payment per se was not subject
to approval. As an exception, special methods of settlement required approval.
These included credit and debit entries between the accounts of residents and
non-residents, deferred payment after more than two years of shipment, and set-
ting off. Thus, even if a Japanese importer had a claim against a foreign exporter,
there was no possibility of set-off; the importer had to pay for the product, and
the exporter had to repay debts by two separate transactions through foreign
exchange banks. The same applied to payments between companies and their
foreign subsidiaries.
¹⁴ <http://www.mof.go.jp/english/e1a702f1.htm>.
450 Other Laws
By the 1997 amendment the entire concept of ‘special methods of settlement’
has been abolished. Except in cases of contingencies, payments are not subject to
licence or prior approval. Instead, there is a reporting requirement. A post facto
report is required where a resident or non-resident has effected payment from
Japan to a foreign country or received payments from overseas, and where a resi-
dent effects payment or receives payment from a non-resident in Japan or overseas
(Art. 55).
On the other hand, banks etc. are now obliged to verify that the payment is
made with appropriate permission if it is required (Art. 17). In cases where a
customer intends to make payment overseas above 50 million yen, banks, postal
offices, and foreign currency exchangers are required to confirm the identity of
the customer by asking the customer to present the necessary documents (Art.
18, para. 1). They are obliged to submit a report on the implementation of this
requirement to the Minister of Finance every six months (Art. 55-2).
(3) Capital transactions

Capital transactions include transactions involving the emergence, transfer,
or termination of claims based upon deposit or trust agreements; transactions
concerning the emergence of claims based upon loan agreements and guaran-
tee agreements; and transactions related to claims emerging from the sale of
instruments of payment or claims between residents and non-residents. Capital
transactions are not limited to transactions between residents and non-residents.
If the transaction is effected in foreign currency, transactions between residents
are also regarded as capital transactions. Furthermore, the purchase of securities
by a resident from a non-resident; transfer of securities by a resident to non-
residents; issuing or offering securities overseas or issuing or offering of securities
denominated in foreign currency by residents or issuing or offering securities in
Japan by non-residents, and issuing or offering of securities denominated or paid
in yen by non-residents are also capital transactions (Art. 20).
By the 1997 amendment, the requirement of prior notification or approval for
capital transactions was abolished. The opening of accounts abroad by residents
was dropped from the list of capital transactions, which was thus fully liberalised.
Issuing or offering securities abroad and loan transactions between residents and
non-residents do not require prior notification either. The 20-day waiting period
with the power of the Minister to recommend changes or suspension was abol-
ished too. On the other hand, these transactions are subject to post facto reporting
(Art. 55-3).
However, contingency control applies to these transactions. Thus, the Minister
of Finance may introduce the system of prior approval, inter alia, in cases where
the maintenance of the balance of payments becomes difficult, foreign exchange
price levels go through excessive fluctuation, or the implementation of inter-
national duties owed by Japan becomes difficult (Art. 21, paras 1 and 2).
(4) Outward direct investment

Outward direct investment is defined in the Law as the purchase of securities
issued by a juridical person established under foreign law, or the providing of
loans to such a juridical person which are aimed at establishing continuing eco-
nomic relations with this juridical person. Payment for the establishment or
expansion of branches, plants, and offices abroad are also regarded as outward
direct investment (Art. 23, para. 2).
Outward direct investments were subject to the prior notification requirement.
In addition, there was a 20-day waiting period, and the Minister of Finance was
empowered to recommend change or suspension of the investment. This prior
notification system was also replaced by the post facto reporting system by the
1997 amendment (Art. 55-3). However, if such an investment negatively affects
the smooth management of the Japanese economy in a significant way, or harms
international peace and security or inhibits the maintenance of public order, and
is so designated by a cabinet order, then the investment is subject to the prior noti-
fication requirement (Art. 23, paras 1 and 4). The 20-day waiting period remains,
but the grounds for the exercise of such power became narrower. This power can
be invoked if the proposed investment will affect the economy of Japan in a sig-
nificantly negative way, or if it harms international peace and security or public
order (Art. 23, para. 4).
(5) Inward direct investment

Inward direct investment includes:
(i) the acquisition of shares and quota in companies other than listed companies
or companies whose shares are traded over the counter;
(ii) the acquisition by assignment, from a non-resident individual, of shares or
equity interest in a non-listed company which the non-resident possessed
before ceasing to be a resident;
(iii) the acquisition of listed shares and shares traded over the counter by a non-
resident, which results in a holding of 10 per cent or more of shares when
combined with the holding of juridical persons and other entities with a
special connection with this non-resident;
(iv) giving consent to a substantial alteration of the purpose of business of a company,
provided that the non-resident has more than one third of the equity;
(v) establishing branches etc., or any changes in the kinds of branches or
substantial change to the purpose of business; and
(vi) extending loans to a juridical person who has had an office in Japan for over a
year, exceeding the amount determined by cabinet order (Art. 26, para. 2).
Non-residents in this context means individuals, juridical persons set up in
accordance with foreign law, as well as companies in which a non-resident owns
452 Other Laws
directly or indirectly more than 50 per cent of the shares, and juridical persons
of which non-residents are the majority of directors or representative directors
(Art. 26, para. 1).
The prior notification system regarding direct inward investment was replaced
by a post facto reporting system (Art. 55-5). In some limited cases prior notifica-
tion is required and there is a 30-day waiting period combined with the power
of the Minister of Finance and the minister in charge of the given business to
recommend changes or suspension. There are several grounds for such prior noti-
fication requirement. First, if the investment affects national security; obstructs
the maintenance of public order or inhibits the protection of the public; or if it
is likely to negatively affect the smooth management of the economy in a signifi-
cant way, and designated by a cabinet order as such, prior notification is needed.
Secondly, prior notification can be required on the basis of reciprocity. Thirdly,
in cases where inward investment is used as a façade—in the view of the flow of
funds, of capital transaction in which prior notification is required on contin-
gency grounds—prior notification is also mandatory.
The above ministers are empowered to recommend the investor to modify the
content of the investment or terminate it altogether after consulting the Customs
and Foreign Exchange Council. If the investor does not accept the recommen-
dation, the ministers may order the modification or termination of investment
(Art. 27).
In 2008, the acquisition of shares of J-Power, the former Electric Power
Development Corporation, by a British investment fund, TCI, became an issue.
Eventually, the government issued an order prohibiting the fund from further
acquisition of shares.¹⁵
4. Rules on the Conflict of Laws
(1) The new law

Rules on the conflict of laws were previously accommodated in the Law on the
Application of Laws (Hōrei).¹⁶ This Law, which was enacted in 1898 under the
influence of German law, remained unchanged since then except for the amend-
ment in 1989 when Japan ratified the Convention on the Elimination of All
Forms of Discrimination against Women. The amendment primarily concerned
marriage and family.
After being in place for more than a century, it was felt that in light of the
developments of legislation and treaties abroad, the Law needed to be harmo-
nised with the international standard. In the 1990s, when securitisation started
in Japan, it was proposed that the governing law for the assignment of claims
¹⁵ Nikkei, 26 April 2008. ¹⁶ Law No. 10, 1898.

should be changed. This proposal for a partial amendment soon developed into
a call for the review of the entire Law, which was endorsed by the Cabinet in
2005. A new Law—the Law on General Rules for the Application of Laws—was
enacted in 2006.¹⁷
(2) Persons
Under the previous Law, as a rule, legal capacity of a person was determined by
the lex patriae—the law of a person’s home country. If a foreign national did not
have legal capacity under the lex patriae, but had capacity under Japanese law,
they were still deemed to have full capacity except in cases involving family law,
succession law, or real estate located abroad.
The new Law made the provision more specific in that the concept of legal
capacity was replaced by the concept of the capacity to act. It provides that a
person’s capacity to act is governed by the lex patriae (Art. 3, para. 1). To this
extent, the provision is the same as before in substance. However, the Law pro-
ceeds to provide that a person shall be deemed to have capacity to act even if
that person has only limited capacity to act under the lex patriae, provided that
this person has the capacity to act under the law of the place where the act took
place, and if all parties are located in the same jurisdiction at the time of the act
(ibid., para. 2).
Concerning juridical persons, it is generally acknowledged that the law of the
country which was applied when the entity was established should be applied
when determining its legal capacity (Grundungstheorie). In one case, where the
capability of a person to sign an agreement on behalf of a company was at issue,
the court ruled that the law according to which the company was established—in
this case Californian law—should be applied.¹⁸
(3) Juristic acts

Private autonomy is acknowledged in the choice of law. Parties are free to deter-
mine the applicable law in relation to the formation and the effect of a juristic act.
The choice of law in this context has to be made at the time the act was performed
(Art.7).
Under the previous Law, if the intention of the parties could not be estab-
lished, the law of the place where the act was performed, the lex loci actus, was
the governing law. The new Law, in contrast, provides that if the parties failed to
make a choice, then regarding the formation and the effect of the juristic act, the
¹⁷ An English translation of the Law can be found in J. Basedow et al. (eds), Japanese and
European Private International Law in Comparative Perspective (Tübingen, 2008), p. 404ff. See also
the articles contained in that volume and in The Japanese Annual of International Law, 2007, vol.
50, p. 3ff.
¹⁸ Judgment of the Tokyo District Court, 28 January 1992, Hanji 1437–122.
454 Other Laws
law of the place which is most closely connected to the act shall be the governing
law (Art. 8, para. 1).
The reason of this change is that (i) the place of the act is often determined by
coincidence and does not necessarily have a connection to the act, and (ii) in the
era of information technology, parties do not necessarily meet, and in such cases,
it is difficult to determine the place where the act was performed.¹⁹
The arrangement of the previous Law was also unreasonable in that if no
explicit agreement of the parties is found, then, without considering various con-
nections, the lex loci actus was universally applied. The prevailing view of academ-
ics was that before applying the lex loci actus, the implied intention of the parties
should be sought.²⁰ The court used to apply the lex loci actus in such cases, but
in recent years it has sought to determine the intention of the parties before pro-
ceeding to apply the lex loci actus. In a case where a fi xed-term deposit contract
concluded between a Japanese branch of a Thai bank and a resident Chinese in
Japan was at issue, the Supreme Court ruled that the parties had chosen Japanese
law by implication.²¹
The new Law also provides for some presumptions. First, if the characteristic
performance of the juristic act is to be made by one of the parties, the law of
the habitual residence of this party is presumed to be the governing law (Art. 8.
para. 2). The concept of characteristic performance has been derived from the
Rome Convention.²² If the party has an establishment which is related to the
juristic act, the law of the place of this establishment is applicable. If there are sev-
eral establishments in different jurisdictions, the law of the place of the principal
office is the governing law.
The second presumption relates to juristic acts whose subject matter is real
property. In such cases, the law of the place of the real property is presumed
to be the governing law (ibid., para. 3). The third presumption involves labour
(employment) contracts—the law of the place where the labour is provided is the
governing law (Art. 12, para. 3).
Whether the choice of law by the parties should be overridden when there are
mandatory provisions in Japan out of public policy considerations, such as the
protection of employees and consumers, has been an issue for some time. For
example, under Japanese labour law dismissal of an employee is restricted by the
doctrine of unfair dismissal. In one case, an American employee of a company
which was established in accordance with New Jersey law sought interim relief
against the company that had dismissed this person. The plaintiff was employed
in New York as general manager of the Japanese branch of the company, but was
¹⁹ K. Koide (ed.), Atarashii Kokusa-Shihō (the New Private Internatioal Law) (Tokyo, 2006), p. 49.
²⁰ Y. Tameike, Kokusai-Shihō Kōgi (Lectures on International Private Law) (Tokyo, 2005).
Y. Sakurada, Kokusai-shihō (International Private Law), 2nd edn (Tokyo, 1998), pp. 210–211.
²¹ Judgment of the Supreme Court, 20 April 1978, Minshū 32-3-616.
²² C. Kessedjian, ‘Party Autonomy and Characteristic Performance in the Rome Convention
and the Rome I Proposal’, in J. Basedow et al. (eds), supra, p. 105.
made redundant. The court ruled that it was the intention of the parties to have
New York law applied. Against the argument that this choice of law should be
modified and Japanese labour law should be applied, the court found that the
consequence of the application of a foreign law should be considered, and only
when there is a specific need to enforce Japanese labour law in order to maintain
the labour law regime, should the application of foreign law be excluded.²³
In another case, the law applicable to an employment contract between
a Californian company and an American employee, who was seconded to a
Japanese airline company and worked as a captain of domestic flights, was at
issue. The contract was governed by Californian law, but the court ruled that the
effect of dismissal was subject to Japanese law, since the employee’s workplace
was in Japan.²⁴
The new Law has introduced specific provisions on consumer contracts and
labour contracts. Concerning employment contracts, even if the law other than
the law of the place with which the employment contract is most closely con-
nected was chosen as the governing law regarding the formation and effect of a
labour contract, the employee may express the intention to have mandatory pro-
visions of the law of the place with which the employment contract is most closely
connected (Art. 12, para. 1). The place where, according to the labour contract,
the labour is to be provided is presumed to be the place with the closest connec-
tion with the employment contract (ibid., para. 2).
Regarding consumer contracts, even if the law other than the law of the
habitual residence of the consumer was chosen as the governing law regarding the
formation and effect of a consumer contract, consumers may express the inten-
tion to include mandatory provisions of the law of their habitual residence (Art. 11,
para. 1). If no such law has been chosen by the parties, the law of the habitual
residence of the consumer is the governing law (ibid., para. 2).
Rights in rem over movable and immovable property, as well as other rights
subject to registration, are governed by the law of the place of the location of the
property (Art. 13, para. 1). However, this may not be appropriate for proper-
ties such as ships and aircraft. In such cases the court has endeavoured to avoid
applying this rule. In one case, the court ruled that the law of the country of reg-
istration should be applied.²⁵
(4) Obligations
The formation and effect of claims arising from agency by necessity (negotiorum
gestia), or unjust enrichment is governed, as a rule, by the law of the place where
the fact giving rise to the claim has occurred (Art. 14). However, if there is a place
²³ Judgment of the Tokyo District Court, 9 August 1967, Rōminshù 18-4-872.

²⁴ Judgment of the Tokyo District Court, 26 April 1965, Hanji 408–14.
²⁵ Judgment of the Matsue District Court, 8 November 1994, Hanji 1549–109.
456 Other Laws
that is apparently more closely related to such a fact, by taking into account that
the parties had their habitual residence in the same jurisdiction at the time the
fact giving rise to the agency by necessity or unjust enrichment occurred, and it
has occurred in relation to a contract between these parties, and other circum-
stances, the law of that place shall be applied (Art. 15).
The problem regarding the governing law of the assignment of claims was
one of the primary reasons for the enactment of the new Law. The previous Law
had provided that the effect of assignment of a claim to a third party should be
governed by the law of the habitual residence of the debtor. The rest was left to
interpretation. The prevalent view of academics was that in an assignment of a
claim, the transaction which is the basis of the assignment must be distinguished
from the claim that is to be assigned. The assignment should be governed by the
law which governs the claim rather than the contract of assignment. The criti-
cism against the arrangement of the previous Law was that if there is a bundle
of contracts which are to be assigned as a whole, and if the debtors live in differ-
ent countries, different requirements apply to these debtors. This would inhibit
securitisation.²⁶
With the development of securitisation, by virtue of two laws enacted in 1991
and 1998, the requirement under the Japanese Civil Code of a notice to the debtor
for assignment of the claim has been relaxed. For claims arising from leasing, a
public notice in a daily paper was made sufficient, and another law introduced in
1998 replaced notice by registration.
The new Law has changed the governing law, and now assignment of claims
is governed by the law which is applicable to the claims which are to be assigned
(Art. 23).
(5) Torts
The previous Law had provided that tort was to be governed by the law of the
country where the facts which serve as the basis of claims took place. It was unclear
from this provision whether this meant the place where the act that caused the
loss took place or the place where the loss/damage has occurred.
The application of the lex loci actus may not always be appropriate in tort. The
universal application of the lex loci actus has been questioned, particularly in the
United States.²⁷ The court in Japan has not gone this far, but within the frame-
work of the previous Law the court has endeavoured to modify the consequence
of its strict application. The court has acknowledged that ‘the place where the
facts which serve as grounds for tort have taken place’ includes the place where
the outcome of the tort materialised.²⁸
²⁶ Koide, supra, pp. 124–125.

²⁷ Babcock v. Jackson, 12 N.Y. 2d 473 (1963). Sakurada, supra, pp. 219–222.
²⁸ Judgment of the Tokyo District Court, 27 May 1965, Kaminshū 16-5-923.
The Law now provides that the formation and effect of claims arising from tort
should be governed by the law of the place where the results of the tortious act
have emerged. However, if the emergence of the result at this place was not nor-
mally foreseeable, then the law of the place where the tortious act has taken place
is applicable (Art. 17).
There are some special rules to this general provision. Firstly, there is a special
rule regarding product liability. The idea is that the governing law should be the
law of the place of the market, i.e. the place where the product is delivered to the
victim. However, if the delivery of the product at that place is not foreseeable
under normal circumstances, the law of the place of the principal establishment
of the producer and others shall apply (Art. 18). Secondly, for defamation, the law
of the place of the habitual residence of the defamed person shall be the govern-
ing law (Art.19).
The choice of the governing law is limited by public policy. If the act in question
does not constitute tort under Japanese law, even if the tort is governed by foreign
law, damages or any other remedy shall not be claimed. Furthermore, if the tort
is governed by foreign law, the aggrieved party is not entitled to any recovery of
damages or remedies than those acknowledged under Japanese law (Art. 22).
5. Marriage and Divorce
The formation of marriage is governed by the lex patriae of each party. Thus, the
capacity to get married, hindrance to marriage, parental consent, etc. are gov-
erned by the lex patriae of each party. Formalities of marriage are governed by
the law of the place of the ceremony; but if it is celebrated in Japan and one of the
spouses is a Japanese national, the formalities shall be governed by Japanese law
(Art. 24).
The effect of marriage is determined, first, by the lex patriae which is common to
the spouses. If there is no such common law, the common law of the place of their
habitual residence is applied. In the absence of a common place of habitual residence,
the law which has the closest connection to the spouses is applicable (Art. 25).
This provision is also applicable to matrimonial property, but as an exception,
spouses may choose the law of the country of either party’s nationality, or the law
of the habitual residence of either party as the governing law via a signed docu-
ment with a fi xed date. Regarding the matrimonial regime of immovables, the
law of the location of the immovables can be chosen (Art. 26, paras 1 and 2).
Agreements on matrimonial property governed by foreign law cannot be set
up against a bona fide third party concerning a juristic act effected in Japan, or
in relation to property located in Japan. In such cases, the matrimonial property
regime in relation to a third party is governed by Japanese law. However, if such
agreements are registered in Japan, they can be set up against a bona fide third
party (ibid., paras 3 and 4).
458 Other Laws
The provision on the effect of marriage is applied with modification to divorce.
However, if one of the spouses is a Japanese national and has habitual residence in
Japan, divorce is governed by Japanese law (Art. 27). Moral damages on the occa-
sion of divorce are governed by the law governing divorce.²⁹ The same applies to
the division of assets as a result of divorce.³⁰
(1) Inheritance
Inheritance is governed by the lex patriae of the deceased (Art. 36). The formation
of a will and its effect are governed by the national law of the testator (Art. 37).
(2) Public policy

If the application of foreign law is against public policy, foreign law is not applied
(Art. 33). Philippine law which does not allow divorce, Egyptian law which does
not allow marriage between people of different religions, Colorado law which
does not acknowledge affiliation, etc. have all been found to be against public
policy of Japan.³¹
(3) Renvoi
As a rule, if one’s lex patriae is to apply and the rules of that law require that
Japanese law should be applicable, then, as a rule, Japanese law should apply
(Art. 41). This does not include the conflict of law rules of Japanese law.
6. Problems Related to Transnational Disputes
(1) Jurisdiction
There is no explicit provision in the Code of Civil Procedure concerning the jur-
isdiction of Japanese courts over transnational disputes. There are three different
approaches to this problem. One school of thought relies on the provision of the
Code on jurisdiction over domestic cases. For example, the Code provides that a
dispute involving tort falls within the jurisdiction of the court where the tortious
act has taken place. Although this provision is designed for domestic disputes,
proponents of this view maintain that it should be applied to transnational dis-
putes with modifications. The second school of thought also acknowledges that
²⁹ Judgment of the Yokohama District Court, 31 October 1991, Hanji 1418–113.

³⁰ Judgment of the Supreme Court, 20 July 1984, Minshū 38-8-105.
³¹ Judgment of the Tokyo District Court, 27 February 1981, Hanji 1010–85; Judgment of Tokyo
District Court, 29 March 1991; Hanji 1424–84, Adjudication of Nagoya Family Court, 2 March
1974, Kagetsu 26-8-94.
these provisions should be applied, but contends that the availability of just and
fair results and the efficiency of the procedure should be taken into account. The
third school of thought disregards the provisions of the Code and claims that the
jurisdiction should be decided by balancing various interests, i.e. convenience to
the parties, the nature of the case, and the proximity of the case with a specific
country.
The position of the Supreme Court on this matter is not necessarily clear. A
leading case involved a plane crash in Malaysia. There was a Japanese passen-
ger on board, and the heir of the deceased sued the Malaysian company at the
District Court of Nagoya in Japan for a breach of duty based upon the passenger
transport contract. The Supreme Court ruled that since there is no established
international rule as to this problem, jurisdiction should be determined by taking
into consideration factors such as fairness between the parties and the availability
of a just and speedy solution of the case. The Court then indicated that if any
provision of the Code of Civil Procedure could be applied, it is reasonable that
Japanese courts assume jurisdiction. In this particular case, the Court acknowl-
edged the jurisdiction primarily on the ground that the plaintiff was domiciled
in Japan and that the defendant was an international company with an office in
Japan which had sufficient resources to contest the case abroad.³² The conclusion
of the Court is supported by a majority of lawyers, despite some ambiguities.
Lower courts have mostly followed this judgment of the Supreme Court by
resorting to the provisions of the Code, and then modifying it by taking into
account various factors pertinent to transnational litigation as ‘special circum-
stances’. In a case where the family of a member of the Self Defence Force claimed
damages from a US company for a defect in a helicopter which crashed and
killed that person in Japan, the district court ruled that if the jurisdiction can
be presumed from the provisions of the Code, the Japanese court should assume
jurisdiction, unless there are ‘special circumstances’.³³ The Code provides that the
court of the locus acti has jurisdiction over tort cases. Therefore, since the accident
occurred in Japan, the Japanese courts assume prima facie jurisdiction. The court
in this case took into consideration the fact that the defendant was a major inter-
national corporation and had a branch office in Japan, the plaintiff was domiciled
in Japan, and that the Self Defence Force had set up an investigation commission
on the accident and that it was easier therefore to obtain evidence in Japan.
Although the court maintains that provisions of the Code are applicable to
transnational disputes, in determining the jurisdiction various factors are taken
into account. In a case where heirs of the victims of a plane crash in Taiwan
sued a US company that had manufactured the aircraft and the Taiwanese airline
company, the court denied jurisdiction on the ground that since there were no
³² Judgment of the Supreme Court, 16 October 1981, Minshū 35-7-1224 (Malaysian Airlines
case).
³³ Judgment of the Tokyo District Court, 27 March 1984, Hanji 1113–26.
460 Other Laws
formal diplomatic ties between Japan and Taiwan, it may be difficult to obtain
evidence.³⁴
(2) Simultaneous proceedings

There are instances where the same case is heard by the court simultaneously in
different countries. For example, a Japanese company was sued by a US company
in the United States for loss resulting from an alleged fault in the machinery that
it had exported. This Japanese company initiated an action in Japan against the
US company, asking the court to acknowledge the absence of an obligation to
the US company. This was intended to block the enforcement of a US judgment
in Japan in case the Japanese company lost the case in the United States. Thus,
the same case came to be pending in both countries.
In this case, the US company claimed that the proceedings in Japan were
unlawful, since the case was already pending in a US court. Under the Japanese
Code of Civil Procedure, no person may initiate litigation on a case which is
already pending at court. In such cases, the subsequent litigation is unlawful and
the court has to dismiss the case (Art. 142). However, the court is of the view
that this provision only applies to proceedings in Japan. In this case, and in other
similar cases, the court found that the existence of a case pending in a foreign
court did not hinder litigation in Japan. In this particular case, the judgment in
the United States came into effect and the plaintiff applied for its enforcement in
Japan. The court rejected the enforcement on the ground that there was a judg-
ment in Japan in force in respect of the same claim, and enforcement therefore
was against public policy.³⁵
Recent views cast doubt on such an approach. Some experts suggest that if
there is a likelihood or possibility of a foreign judgment on the same claim being
enforced in Japan, then the first litigation should be respected and the second
litigation in Japan should be suspended or dismissed. However, the Code lacks
provisions to this effect.³⁶
(3) Sovereign immunity

A leading case on this issue involved a suit brought against the then Republic
of China in the 1920s. A deputy minister at the embassy in Japan issued a
promissory note. The assignee of the endorsed promissory note presented it to
a bank, which refused to pay upon instruction from the Chinese Government.
The assignee sued the Republic of China for payment. The Supreme Tribunal
³⁴ Judgment of the Tokyo District Court, 20 June 1986, Hanji 1196–87.

³⁵ Judgment of the Osaka District Court, 22 December 1977, Hanta 361–127; Interim
Judgment of the Tokyo District Court, 30 May 1989, Hanji 1348–91.
³⁶ Y. Honma et al., Kokusai-Minji-tetsuzuki-hō (International Civil Procedure Law), (Tokyo
2005), pp. 85–96.
ruled that a foreign State is not subject to a foreign jurisdiction, unless the State
voluntarily submits itself to foreign jurisdiction³⁷ This ruling did not distinguish
between prerogative acts and commercial acts of the State. Since then, no other
cases on this issue have reached the Supreme Court, and therefore this ruling is
still the precedent.
The notion that only prerogative acts of the State are immune from foreign
jurisdiction is now widely accepted throughout the world. In bilateral treaties
such as the US–Japan Friendship, Commerce and Navigation Treaty, sovereign
immunity is limited to prerogative acts.
In 2006, the Supreme Court changed its position to the restrictive doctrine of
sovereign immunity. In this case, a Japanese company sold a high performance
computer to a representative of the Pakistan government. The payment claim was
converted to a loan contract. The borrower defaulted, so the Japanese company
brought an action against the State of Pakistan. The defendant invoked sover-
eign immunity. However, the Supreme Court found that a foreign State was not
exempted from the jurisdiction of the court of Japan regarding its act in the realm
of private law or of a business/managerial nature, unless there are special circum-
stances such as the possibility of infringement upon the sovereignty of this State
as a result of the exercise of the civil jurisdiction of Japan.³⁸
(4) Capacity to sue and to be sued

The Code of Civil Procedure has no explicit provision on whether a foreign
company has the right to sue or to be sued. This becomes an issue particularly
for partnerships or cooperatives which do not have juridical personality. Some
bilateral treaties, such as the US–Japan Friendship, Commerce and Navigation
Treaty and UK–Japan Commerce and Navigation Treaty, have provisions which
acknowledge national treatment of foreign companies. Partnerships are treated
in Japan in a similar way to associations under the Civil Code and have the right
to sue and to be sued. A Kenyan partnership was acknowledged to have such
capacity.³⁹
(5) The application of foreign law in Japanese courts

There are instances where a foreign law was chosen or determined as the govern-
ing law. In Anglo-American jurisdictions, foreign law is regarded as fact rather
than law, and it is up to the parties to present and prove the law. In contrast, in
Japan as well as in Germany and Austria, foreign law is seen as a norm on which
the judgment should be based, and therefore it is the duty of the court to find the
³⁷ Decision of the Supreme Tribunal, 28 December 1928, Minshū 7–1128.

³⁸ Judgment of the Supreme Court, 21 July 2006, Minshū 60-6-2542.
³⁹ Judgment of the Tokyo District Court, 9 August 1959, Kaminshū 11-8-1647.
462 Other Laws
law and ascertain its substance. The court makes inquiries with experts and an
expert witness can be appointed by the court.
There are different views as to what law should be applied when the content of
foreign law is not known. Some maintain that Japanese law should be applied, while
others claim that the case should be decided on the basis of reason. At present, the
prevailing view is to apply the law which is most akin to the law in question.⁴⁰
(6) Judicial cooperation with foreign countries

Japan is a signatory to two international treaties concerning international judicial
cooperation. One is the Convention on the Civil Procedure of 1950 (the Civil
Procedure Convention) and the other is the Convention on the Service Abroad of
Judicial and Extra-Judicial Documents in Civil or Commercial Matters of 1964
(the Service of Documents Convention). As of 2008, forty-seven countries are
parties to the Civil Procedure Convention, but countries such as the US, UK,
and Canada had failed to do so. As regards the Service Convention, fifty-eight
countries including the US and UK are parties to the Convention. Japan ratified
these Conventions in 1970 and accordingly a law on special rules to the Code of
Civil Procedure was enacted.
Under the Civil Procedure Convention, documents are served at the request
of the consular officer of the foreign country (in practice, the ambassador of
the given foreign country to Japan) to the Minister of Foreign Affairs in Japan.
According to the Service of Documents Convention, it is possible to address the
request directly to the Minister of Foreign Affairs.
(7) Enforcement of foreign judgments

The Code of Civil Procedure has an explicit provision on the enforcement of
foreign judgments. A foreign judgment which has taken effect in the home coun-
try is enforceable in Japan, provided that (i) the jurisdiction of the foreign court
is acknowledged by law or international treaty; (ii) if the losing party is Japanese,
this party has been properly served by a writ or summons, or has voluntarily
accepted the jurisdiction of the foreign court; (iii) the judgment is not against
public policy or the good morals of Japan; and (iv) there is a reciprocal guarantee
of enforcement between the foreign country and Japan (Art. 118).
Japan is a party to bilateral judicial cooperation treaties with countries includ-
ing the UK, Australia, Austria, Brazil, Denmark, Germany, Iran, Iraq, Italy,
Kuwait, Norway, Spain, Sri Lanka, Switzerland, Syria. Thailand, and the former
USSR. There are consular treaties with the United States and the UK.
⁴⁰ H. Matsuoka, ‘Gaikoku-Hō no Tekiyō to Saibansho (Application of Foreign Law and the

Court)’, in A. Takakuwa and M. Dogauchi (eds), Kokusai Minji-soshō-hō (Law on International
Civil Procedure) (Tokyo, 2002), pp. 262–264.
Concerning the requirement of reciprocity, the recent majority view inter-

prets this provision rather flexibly, and unless the foreign country imposes exces-
sive conditions on the enforcement of a Japanese judgment, the requirement of
reciprocity is deemed to have been met. This becomes an issue when a foreign
country makes it a rule for the court to review foreign judgments on their merit
before allowing enforcement. Since the Japanese court does not examine for-
eign judgments on merit, this is against the requirement of reciprocity. So far,
reciprocity has been acknowledged by the court for judgments rendered in the
United States (California, Hawaii, New York, Washington DC); Switzerland
(Canton of Zurich); the UK; and Germany, but was denied in relation to
Belgium and Hong Kong.
The Supreme Court has ruled on the enforceability of punitive damages. In
that case, the enforcement of a Californian court judgment ordering payment of
punitive damages was at issue. The courts of first instance and second instance
rejected enforcement on different grounds. The Supreme Court ruled that the
mere fact that the judgment contains an institution which does not exist in Japan
does not necessarily mean that its enforcement is against public order. However,
if the given institution is not compatible with the fundamental principles or ideas
of the legal system of Japan, the foreign judgment is against public order. The
system of punitive damages in California has a similar meaning to the system
of fines and other criminal penalties and is therefore different from the system
of compensation in Japan, which aims at the recovery of the status quo ante. The
Court found this to be against the basic principles of the system of compensation
in Japan and rejected enforcement on the ground of public policy.⁴¹
For cross-border insolvency, see Chapter 12.
⁴¹ Judgment of the Supreme Court, 11 July 1997 Minshū 51-6-2573.

Index
Abuse of dominant position, 350–351 general associations and foundations 123–125
Abuse of rights kumiai 221
intellectual property 121 Attorneys see also Para legals
overview 121 disciplinary procedures 79
unfair dismissal 395 foreign attorneys 82–84
Acceptance see Offer and acceptance general 78–79
Access to information 99–100 Audit
Accounting see also Accounting
disclosure requirements 322 corporate auditors 252–253
dividends 281–282 governance structure 242
general principles 278–279 large and small companies
share capital and reserves 280–281 distinguished 221
Acquisitions see Mergers and Authors’ rights 373–374
acquisitions
Administrative guidance Banking
advantages and disadvantages 48–49 see also Securities law
cartels 342 ‘Big Bang’ 296
meaning and scope 46–47 bond managers 273
Adult guardianship 122–123 consumer protection 161
Agency corporate finance 271
apparent agency 134–135 crisis of 1997 297
governing law 455 excessive concentrations of economic
sole distribution rights 352 power 335
types 132 market supervision by FSA 324–326
general 131–135 segregation from securities
Aliens business 294–295
constitutional protection 90–91 set-off 149
immigration law 445–447 Bankruptcy see also Insolvency 286–288
foreign companies 447–448 ‘Big bang’ 24, 295–296
Alternative dispute resolution Board of directors (see also Directors)
ADR Law 58 committee system 251–252
arbitration of industrial disputes 404 executive officers 251
civil conciliation 67 overview 250–251
family conciliation 66–67 Boissonnade, G. 114
industrial disputes 403–405 Bond issues 272–274
overview 66–68 Boycotts of trade 346–347
Anti-monopoly law see Competition law Bribery of foreign public
Appeals officials 428
civil procedure 423
criminal procedure 442 Cabinet orders 39
Applicable law see Conflict of laws Capacity see Legal capacity
Arbitration see International commercial Cartels
arbitration general provisions 340–342
Assignment of claims government-led cartels 342–344
general principles 143–144 international cartels 356–357
governing law 456 Case law
subrogation 144–145 development of labour law 386
Assignment of shares development of tort 181
general principles 239 equitable approaches 43
restrictions on assignment 234 importance 42–43
Associations precedent 43–45
466 Index
Censorship 96 defined 307–308
Circulars 45 Commercial Code
Civil Code general principles 118
anti-positivist approach 8–9 history and development 117, 212
contemporary reforms 24–25 offer and acceptance 153
general principles relationship to Civil Codes 117
abuse of rights 121 sources of contract law 150
good faith and fair dealing Companies limited by shares
doctrine 119–120 bond issues 274
overview 118–119 governance structure 242
public policy and good Company law
morals 127–128, 363, 463 amendments 217–220
history and development 113–117 characteristics of share
juristic acts ownership 225–226
agency 131–135 companies with committees within the
concept 127 board 241–242, 251–252
defective declarations of contemporary reforms 24
will 129–131 corporate governance structure 241–256
definition 127 corporate auditors 252–253
duress 131 derivative shareholder actions 253–256
mental reservation 129 dividends 281–282
mistake 130–131 directors 247–252
public policy and good morals 103, financing of companies
127–128 bond issues 272–274
legal capacity characteristics of corporate
juridical persons 123–126 finance 270–272
physical persons 121–123 new share issues 274–278
obligations 136 general shareholders
relationship to Commercial Code 117 meetings 242–247
sources of contract law 150 statutory reform 241–242
strict liability 193 history and development 217–220
Civil procedure legal capacity 125–126
appeals 423 listed companies 224–225
capacity and standing 111–112 mergers and acquisitions
disclosure of documents 415–417 appraisal rights 259
enforcement of judgments 423–425 current trends 256–257
interrogatories 414–415 hostile takeovers 261–267
jurisdiction 410–411 invalidity 261
obtaining of documents 415–417 procedures 257–259
oral proceedings 419–421 protection of creditors 259
overview 409–410 piercing of corporate veil 126
preliminary proceedings 413–419 recognition of foreign
small claim procedure 425 companies 447–448
standing 411–412 setting up of companies 226–230
Civil rehabilitation procedure, share buy-backs 282–284
see also Insolvency law 288–289 share capital and reserves 280–281
Collective agreements shares
collective bargaining 399–400 assignment of shares 239
constitutional guarantees 384 classes of shares 232–237
general principles 400–402 exchange and transfer 231–232
relationship to rules of minimum trading units 230–231
employment 388 pre-emption rights 239–241,
working hours 391 237–238
Collective investment schemes split-ups and consolidations 231
conduct and management splitting of companies
rules 308–309 labour relations 269–270
Index 467
procedure 267–269 equal treatment 100–101
types of company foreign nationals 445
new structures 223–225 freedom of expression 94–100
pre-2005 system 220–221 history and development 86–87
Compensation see Damages labour law protection 383–385,
Competition law (Anti-monopoly law) 399–400, 402
application to international religious freedom 103
transactions 355–358 restrictions 92–95
concentrations of economic power judicial (constitutional) review 32–35,
general concentrations 334–336 92–95
mergers and acquisition 336–340 judicial independence 43, 75
contemporary reforms 22–25 Popular Rights Movement 14–15
enforcement proposals for amendment 29
criminal sanctions 360–361 relationship with international
damages 361–362 treaties 41–42, 32–35
overview 358–359 separation of powers 32
procedure 359–360 underlying principles 29–30
surcharges 360 Constitutional review (judicial) 32–35,
history and development 327–330 92–95
keiretsu Consumer protection
company groups 354–355 contemporary reforms 160–161
distribution agreements 354 financial instruments 161
supply networks 353–354 governing law 455
post-war reforms 20–21 offer and acceptance 153
private monopolisation 332–334 standard form contracts 161–162
structure of the Anti-Monopoly unfair trade practices 345
Law 330–332 Contract law
unfair trade practices see also Obligations
abuse of dominant position 350–351 culpa in contrahendo 120, 154–155
deceptive soliciting and unfair general rules
benefits 348 freedom of contract 152
discriminatory treatment 347 offer and acceptance 152–153
meaning and scope 344–346 governing law 455
parallel imports 352 Japanese approach to contracts 150–152
refusal to trade 346–347 public order and good morals 128
resale price maintenance 349–350 sale contracts
restrictive dealings 348–349 defects and remedies 159–160
sole distribution rights 352 liability of the seller 159
unreasonable restraint of trade transfer of title and risk 158–159
cartels generally 340–342 sources 117, 150
government-led cartels 342–344 termination of continuous
Computer programmes 372–373 contracts 155–158
Conflict of laws Contributory negligence 192–193
juristic acts 453–455 Copyright
legal capacity 453 authors’ rights 373–374
marriage and divorce 457–458 computer programmes 372–373
obligations 455–456 history and development of
statutory reform 452–453 system 371–372
torts 456–457 infringement 375–376
Constitution neighbouring rights 375
amendment procedure 31–32 scope of protection 372
Constitution of 1889 15–18 Courts
history 28, 86–87 district courts 57–58
human rights protection family courts 61–63
due process 105–107 High Courts 58
economic rights 107–108 history and development 53–55
468 Index
Courts (cont.) Diet (Parliament)
Intellectual Property High Court 60–61 composition 36
Justice System Reform 55–57 impeachment of judges 75–76
lay participation 63–65 legislative procedure 36–37
speeding up of proceedings 66 separation of powers 32
summary courts 63 Supreme body of state power 29–30, 35–37
Supreme Court 32–35, 58–60, Directors see also Board of directors
108–109 derivative shareholder actions
Criminal law against 253–256
environmental protection 435–436 external directors 252
history and development 426–430 fiduciary duty 248
homicide 433–434 overview 247–249
intellectual property infringements representative directors 249
copyright 376 shares with right of appointment 236–237
patents 371 Discharge of obligations 148–149
trade secrets 379 Disclosure
moral crimes 434–435 company law 278–279
official secrets 434 Financial Instruments and Exchange
organised crime 436 Law 321–323
patricide 100–101 Takeover Bid 325
protection of trade secrets 435 Discrimination see Equal treatment
Criminal procedure Distribution agreements
appeals 442 keiretsu 354
hearsay evidence 441 restrictive dealings 349
history and development 436 sole distribution rights 352
judgments 442 Dividends 281–282
pre-trial procedure 436–439 Divorce
prosecution 439–440 general principles 204–207
sentencing 442 governing law 458
trials 440–442 Due process of law 105–106, 431, 436
Cross-border disputes Duress 131
application of foreign law 461–462 Duty of care for other person’s
enforcement of foreign arbitral safety 138–139
awards 73–74
enforcement of foreign judgments 462–463 Economic rights 107–108
insolvency 290–292 Electoral system 33–34, 102–103
judicial cooperation 462 constitutional review 33–34
jurisdiction 458–460 equal treatment 102–103
legal capacity 461 Employer’s liability 193–195
simultaneous proceedings 460 Employment relations
sovereign immunity 460–461 see also Labour law
Cross-border disputes 458–463 disciplinary actions 392–393
Cross-border payments 449–450 equal treatment 388–390
Cross-shareholding 225–226 legislative reforms 386
Culpa in contrahendo 120, 154–155 life-long employment system 393–394
Customary law 51–52 mandatory retirement 398
minimum wages 390
Defamation part-time and temporary
enforcement of apologies 141 workers 387
freedom of expression 97–98 rules of employment 387–388
governing law 457 transfers and secondment 396–398
Defective declarations of will 129–131 unfair dismissal 394–396
Delegated legislation 39–40 working hours 390–392
Deregulation (regulatory reform) 7, 23–24, Environmental protection
218, 295 criminal sanctions 435–436
Derivative (shareholders’) action 253–256 delegated legislation 39
Detention of suspects 106–107, 437–438 tort liability 181, 186–187
Index 469
Equal treatment Freedom of information 99–100
constitutional guarantees 100–101 Freedom of thought, conscience and religion
constitutional review procedures 34 constitutional guarantees 103
electoral law 102–103 constitutionality or religious acts 103–105
employment relations 388–390 equal treatment of workers 388
gender discrimination 25, 101 Full partnership companies 223
inheritance law 101 Funds see Collective investment schemes
international treaty obligations 110
nationality 102, 443 General rights of personality 91–92
reasonableness test 101–102 General shareholders meetings
Exclusive dealerships 349, 352 convocation procedure 242–243
Executive officers (shikkō-yakuin) 251 current practice 244–245
Executive officers, senior (shikkō- validity of resolutions 245–247
yaku) 251–252 voting 243–244
‘Golden shares’ 236
Fair Trade Commission, Good faith and fair dealing doctrine
overview 330–332 contractual obligations 154–155
procedure 359–361 general principles 119–120
Family law obligations 136–137
children termination of continuous
adoption 208 contracts 155–158
legitimacy 207–208 unfair dismissal 396
parental rights and duties 208–209 Governing law see Conflict of laws
conciliation procedures 66–67
Constitutional reforms 201–202 Habeas corpus 59, 141
dispute settlement 209–210 Hearsay evidence 441
divorce 204–207 Holding companies 231–232, 330, 334–336
marriage 203–204 Hoso see Legal profession
FIEL (Financial Instruments and Exchange Human rights
Law) ‘balancing of interests’ approach 90–93
background and enactment 297–300 constitutional protection
goal 300–301 1889 Constitution 16
professional investors 1946 Constitution 87–90
distinguished 313–314 history and development 86–87
scope 301–303 due process of law
‘securities’ as key concept 303–306 constitutional guarantees 105–106
Financial instruments defendants and suspects 106–107
consumer protection 161 economic rights 107–108
Financial instruments business equal treatment
capital requirements 310–311 constitutional guarantees 90–91, 102–105
categories of business 310–311 electoral law 102–103
effects of regulation 311–312 gender discrimination 101
scope 309 inheritance 101
Financial instruments firms labour relations 388–390
conduct rules 312–313 nationality 102
defined 309 reasonableness test 101–102
Financial supervices agency 325–326 treaty ratification against Gender
Force majeure 138 Discrimination 25
Foreign exchange law freedom of association 385
capital transactions 450 freedom of expression
cross-border payments 449–450 constitutional guarantees 94
inward and outward direct defamation 97–98
investment 451–452 interim measures 97
liberalisation of controls 448–449 journalistic sources 98
Foundations, general 123–125 obscenity 95–97
Freedom of expression, see also Human protective judicial interpretation 90–91
rights 94–104 restrictions 94–95
470 Index
Human rights (cont.) neighbouring rights 375
general rights of personality 91–92 scope of protection 372
international treaty obligations 109–110 design rights 379–380
religious freedom patents
constitutional guarantees 103 application procedure 366–369
Shintoism 103–105 employee inventions 369–370
role of the Supreme Court 108–109 infringement 370–371
Hypothec patentability 365–366
meaning and scope 175–176 plant varieties 380
rights in bankruptcy 288 protection of trade secrets in civil
proceedings 421–422
Illegitimate children recent development 363–364
general principles 207–208 trade marks 376–377
inheritance 210 trade secrets 377–379, 421–422, 435
Immigration law 445–447 utility models 379
Immoveables Interim measures 413–414
moveables distinguished 170 International commercial arbitration
registration 166–168 contemporary reforms 69
types 165–166 enforcement of foreign arbitral
Industrial action awards 71–72
constitutional guarantees 383–385 jurisdiction 70
dispute settlement procedures 403–405 procedure 70–71
general principles 402–403 setting aside of awards 71
trade union immunity 398 taking of evidence 70–71
Inheritance International treaties
equal treatment 101 human rights 25, 109–110
governing law 458 intellectual property law 365
illegitimate children 210 sale of goods 160
intestate inheritance 210 sources of law 40–42
joint ownership 211 workers’ rights 385
Renunciation of inheritance 211 Interrogatories 414–415
Injunctions Intestate inheritance 210
competition law 362
copyright infringements 375 Joint ownership
patent infringements 371–372 general property law 171–172
tort law 197–198 inheritance 211
trade secrets 378 matrimonial property 204
Insider trading 318–320 Joint tortfeasor liability 196–197
Insolvency law Judges
Bankruptcy procedure 286–288 appointment 74
civil rehabilitation procedure 288–289 independence 75
contemporary reforms 25 Justice System Reform 56
corporate reorganisation role in civil cases 419–420
procedure 289–290 tenure 74–75
international insolvency 290–292 transfers and promotions 75
overview 285–286 Judgments
Intellectual Property High Court see also Enforcement
establishment 60 civil procedure 423
jurisdiction 61, 410–411 criminal trials 442
Intellectual property law Judicial cooperation with foreign
biotechnology 363–364, 380 countries 462
copyright Judicial scriveners 80–81
authors’ rights 373–374 Juridical persons
computer programmes 372–373 overview 123–126
history and development of foreign 447–448
system 371–372 Juristic acts
infringement 375–376 agency 131–135
Index 471
concept 127 Legitimisati on 207–208, 443–444
defective declarations of will 129–131 Limited liability companies
duress 131 governance structure 242
mental reservation 129 pre-2005 system 221–222
mistake 130–131 Limited liability companies (gōdō-kaisha,
null and void acts and voidable acts 131 LLC of US type) 223
public policy and good morals 103, Limited liability companies (German GmbH,
127–128 abolished) 223
sham transactions 130 Limited liability partnerships 223–224
Justice System Reform Limited partnership companies 223
law school system 86–87 Listed companies 224
overview 57–59 Local regulations 49–51
promotion of ADR 68
recruitment and promotion of judges 75 Marriage
saiban-in system 65–70 dissolution and divorce 204–207
speeding up of proceedings 66, 354 general principles 203–205
supply keiretsu 353–354 governing law 457–458
Measure of damages 141–142
Labour law ‘Mental reservation’ 129
constitutional guarantees 383–385 Mergers and acquisitions
employment relations appraisal rights 259
disciplinary actions 392–393 Bulldog sauce case 266–267
equal treatment 388–390 competition law: excessive concentrations of
legislative reforms 386 economic power 336–340
life-long employment system 393–394 current trends 256–257
mandatory retirement 398 defensive measures 263–267, 325
minimum wages 390 disclosure requirements for
part-time and temporary workers 387 takeovers 322–325
rules of employment 387–388 hostile takeovers 261–267
transfers and secondment 396–398 invalidity 261
unfair dismissal 394–396 NBS case 264–266
working hours 390–392 Primary purpose rule 265
history and development 381–383 procedures 257–259
splitting of companies 269–270 protection of creditors 259
trade unions registration 260
collective agreements 400–402 simplified procedures 259
collective bargaining 399–400 Minimum wages 390
dispute settlement procedures 403–405 Mistake 130–131
general principles 398–399 ‘Mothers’ 224–225
industrial action 402–403 Moveables
Lawyers see Legal profession immediate acquisition 170
Lay judiciary 63–65 immoveables distinguished 165
Legal capacity real security rights 177
civil procedure 411
governing law 453 Nationality
juridical persons 123–126 equal treatment 102, 388
physical persons 121–123 legitimisation 443–444
Legal profession naturalisation 444
attorneys 78–80 overview 443–445
judges 74–76 Negligence
Justice System Reform 55–57 contributory negligence 192–193
para-legals criminal negligence 432
in-house counsel 81–82 standard of care 182–184
judicial scriveners 80–81 Neighbouring rights 375
patent attorneys 80 Non-discrimination see Equal treatment
tax attorneys 80 ‘Non-litigiousness’ of the Japanese 4–5
public prosecutors 76–78 Novation 148
472 Index
Obligations acquisitive 170–171
see also Contract law doctrine of good faith and fair dealing 120
assignment of claims extinctive 135
general principles 143–144 Preservation of evidence 414
subrogation 144–145 Pre-trial procedures
enforcement 140–141 criminal justice system 436–439
extinction of claims 148–149 Privacy, right to 91
governing law 455–456 Private monopolisation 332–334
management of another’s affairs without governing law 457
mandate 162–163 new Law 117
multiple parties overview 198–200
divisible and indivisible subscription to shares 227
obligations 146–147 Property law
suretyship 147–148 governing law 455
performance joint ownership 171–172
delayed performance 137 moveables and immoveables
effects 141–143 distinguished 165
general principles 141–142 ownership 134–135
imperfect performance 138 real rights
impossibility of performance registration 166–168
137–138 types 165–166
refusal to accept performance 139 real security rights
Obtaining of documents 415–417 atypical rights 177–179
Offer and acceptance 152–153 statutory rights 174–177
Official secrets 100, 434 registration 166–168
Organised crime 436 rights in rem and in personam rights
Ownership 169–172 distinguished 164
rights over another’s property 172–174
Par-value shares 230 Prosecution 439–440
Para-legals Prosecution review board 439–440
in-house counsel 81–82 Public companies
judicial scriveners 80–81 characteristics of share ownership
patent attorneys 80 225–226
tax attorneys 80 definition 224
Parallel imports 352 governance structure 242
Parliament see Diet introduction of new structures 224–225
Patents Public policy and good morals
application procedure 366–369 enforcement of foreign judgments 463
computer programmes 373 general 127–129
employee inventions 369–370 Public prosecutors
infringement 370–371 discretionary role 434–439
jurisdiction 410–411 overview 76–78
patentability 365–366 Public welfare 91–92, 118–119
Performing rights 375
Piercing of corporate veil 126 Redundancy
Plant varieties 380 general requirements 395–396
Pledges 175 transfers and secondment 396–398
Popular Rights Movement 14–15 Refugees 445–447
Pre-emption rights Religious freedom see Freedom of thought,
Bonds with pre-emption conscience and religion
rights 272 Representative actions 412
new shares 239–241, 264–267 Representative directors 249
Preferential rights Resale price maintenance 349–350
meaning and scope 175 Retention rights 174–175
moveables 177 Right to defence
Preferred shares 233–234 constitutional right 107
Prescription criminal trial 441
Index 473
suspects in custody 437–438 financial instruments exchange 314–315
Rights issues 275 Strict liability
Rule of law 26–27 defective products 199–200
employer’s liability 193–195
Saiban-in (lay assessors) system 58, 67 occupiers liability 195–196
Sale contracts road traffic accidents 195
defects and remedies 159–160 special laws 181
liability of the seller 159 Subrogation 144–145
transfer of title and risk 158–159 Substitution 145
Scholarly opinion 52 Succession, see Inheritance law
Securities 303–306 Superficies 172
Separation of powers 32 Supreme Court
Set-off constitutional review procedure 32–35
bankruptcy debts 287 overview 58–60
performance of obligations 148–149 role in protecting human rights 109–110
Setting-up of companies Surcharges
by offering shares 229–230 Anti-Monopoly Law 360
by promotors 227–229 Financial Instruments and Exchange
Sham transactions 130 Law 321
Share buy-backs 282–284 Suretyship 147–148
Shareholders
appraisal rights 259 Take-overs see Mergers and acquisitions
derivative shareholder actions 253–256 Tax attorneys 80
Shares Testate inheritance
abolition of par-value shares 230 general principles 212–213
assignment of shares 239 Tort liability
characteristics of ownership 225–226 general rules
classes of shares causation 186–188
acquisition by company 235–236 fault 182–185
appointment of directors and overview 181–182
auditors 236–237 scope of losses 188–193
introduction of new classes 232–233 unlawfulness 185–186
limited voting rights 234–235 governing law 456–457
preferred and deferred shares 233–234 joint liability 196–197
restrictions on assignment 234 product liability 198–200
UFJ Bank case 237 remedies 197–198
‘veto’ rights 236 special laws 181
minimum trading units 230–231 strict liability 193–196
new share issues Trade marks 376–377
general requirements 275 Trade secrets 377–379, 421–422, 435
public offerings 277–278 Trade unions
rights issues 275 collective bargaining and
third party issues 275–277 agreements 399–402
pre-emption rights 239–241 constitutional guarantees 384
public and other companies dispute settlement procedures 403–405,
distinguished 224 398–399
role of certificates 237–238 history and development 381–383
split-ups and consolidations 231 Transfer of employees
SII (Structural Impediments Initiatives) splitting of companies 269–270
Talks 23, 218, 323, 328–329 transfers and secondment to avoid
Small claims procedure 425 redundancy 396–398
Sovereign immunity 460–461
Standard form contracts 161–162 Unfair dismissal 394–396
Stare decisis 43 Unfair trade practices
Statutory laws 35–38 abuse of dominant position 350–351
Stock exchanges application of law to international
establishment 224–225 transactions 355
474 Index
Unfair trade practices (cont.) rumour spreading 320
deceptive soliciting and unfair benefits 348 Uniform state examination 84–85
discriminatory treatment 347 Unjust enrichment 162–163
intellectual property rights 353 governing law 455–456
meaning and scope 344–346 Unreasonable restraint of trade
parallel imports 352 application of law to international
refusal to trade 346–347 transactions 355
resale price maintenance 349–350 cartels
restrictive dealings 348–349 general provisions 340–342
sole distribution rights 352 government-led cartels 342–344
Unfair trading in the financial market
compensation of favoured Utility models 379, 410–411
customers 317–318
enforcement 320–321 Wills
general provisions against fraud general principles 212–213
315–316 Working hours 390–392
insider trading 318–320
market manipulation 316–317 Zaibatsu 293, 327

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JA PA N E SE L AW

1. Japanese Law Viewed from Abroad

Japanese Law. Third edition. Hiroshi Oda.

Business in Japan (loose-leaf) published in the 1980s which still continues to be

⁴ Z. Kitagawa (ed.), Doing Business in Japan (New York, 1980).

¹⁰ K. H. Ebert, Rechtsvergleichung: Einführung in die Grundlagen (Bern, 1978), S. 112–118.

¹⁹ N. Hozumi, supra, pp. 21–22.

2. Anti-Positivism in Japanese Law

If any uniqueness is to be found in Japanese law, it is not in the approach to

1. The Period of Modernisation

Japanese Law. Third edition. Hiroshi Oda.

After the Emperor’s proclamation of the intention to introduce constitutional

Supporters of Emperor-centred nationalism were not fully satisﬁed with

⁸ R. Storry, A History of Modern Japan, revised edition (Harmondsworth, 1982), p. 119.

¹⁰ University of Tokyo, Tokyo-Daigaku Hyakunen-shi (Centenary of the University of Tokyo)

¹¹ Nichibei-Kōzō-Kyōgi Saishū-Hōkoku (Final Report of the US-Japan Structural Impediments

¹³ See J. Nakagawa et al. (eds), Kiseikanwa no Seiji-Keizaigaku (Political Economy of

1. The Rule of Law

Japanese Law. Third edition. Hiroshi Oda.

(1) Historical background

(2) Fundamental principles underlying the Constitution

⁶ M. Itoh, Kenpō (Constitutional Law), 3rd edn (Tokyo, 1994), p. 172.

(3) The procedure for constitutional amendment

¹³ Law No. 51, 2007.

(4) Separation of powers

(5) Constitutional and judicial review

¹⁵ N. Ashibe, Kenpō (Constitutional Law), 4th edn, supplemented by K. Takahashi (Tokyo,

¹⁶ Cited in N. Ashibe, ‘Shihō-Sekkyoku-Shugi to Shōkyoku-Shugi (Judicial Activism and

²² Judgment of the Supreme Court, 28 November 1962, Keishū 16-11-1593.

a suit seeking the revocation of an administrative decision, the Supreme Court

²⁶ Judgment of the Supreme Court, 27 April 1983, Minshū 37-3-345.

Legislative power is often delegated to cabinet orders, ministerial ordinances,

³⁵ Judgment of the Supreme Court, 1 May 1958, Keishū 12-7-1272.

The Constitution provides that international treaties as well as the established

In an oﬃcial opinion in 1974, the government listed the following categories

⁴² Opinion of the Government, 20 February 1974.

⁴³ Judgment of the Supreme Court, 26 January 1976, Shōmu-geppō 22-2-578.

⁴⁴ T. Hironaka, ‘Wagastuma minpō-gaku to han-seitei-hō-teki kaishaku (Civil Law Theories of

criminal penalties in such cases to be constitutional.⁴⁹ There had been a change

Circulars (tsūtatsu) of ministries and other administrative agencies are cat-

⁵⁰ H. Shiono, ‘Administrative Guidance’, in K. Tsuji (ed.), supra, p. 204.

In some cases, restrictions not embodied in law are imposed by way of

⁵³ F. Upham, ‘Privatized Regulation: Japanese Regulatory System in Comparative and

⁵⁴ Judgment of the Supreme Court, 16 July 1980, Minshū 39-5-989.

Administrative guidance again became an issue when the failure of the

⁵⁸ Judgment of the Supreme Court, 15 October 1958, Keishū 12-14-3305.

level. However, the development of local regulations on pollution control led to

10. Customary Law

⁶⁰ H. Shiono, supra, vol. 3 (Tokyo, 1995), pp. 134–141.

11. Scholarly Opinion

⁶³ Judgment of the Supreme Tribunal, 18 October 1926, Hyōron 16.

Japanese Law. Third edition. Hiroshi Oda.

2. The ‘Justice System Reform’

⁴ Judgment of the Supreme Court, 8 October 1952, Minshū 6-9-783.

⁷ Law No.119, 2001.

the criminal justice system—saiban-in—or the lay assessor system is to start

3. The Court System

(1) District Courts

(2) High Courts