Financial Liberalization and Japan's Agricultural Cooperatives

The system of agricultural cooperatives, called JA, is one of the most politically powerful organizations in Japan, and it has continuously called for agricultural protection. In spite of its importance, information on JA's banking and insurance businesses has been limited for foreign researchers because of the uniqueness and complexity of the JA system. This paper provides a clear understanding of JA's activities and explains the political dynamics in Japan's agricultural sector. Up until the early 1990s, JA could count on stable profits from its banking and insurance businesses because of the government's favorable treatment of JA. Using these profits, JA had been successfully forming farmers into a solid voting group until the mid-1990s. However, the government gradually abandoned its favorable treatment of JA in order to introduce more competition in financial markets. As a result, profitability of J's banking and insurance businesses became unstable in the mid-1990s. The mid-1990s can be regarded as the turning point of the political dynamics of Japan's agricultural sector. As JA lost stable profits, its organizing ability and political power also weakened. The political pressure for agricultural protection also decreased. Because of this decrease in political pressure, there is now a prime opportunity for the Japanese government to reform its agricultural policies. It is not agricultural market and/or trade liberalization that is providing this opportunity. Instead, financial liberalization is providing this opportunity.