Japan's major banking groups all achieved their fiscal 2004 target of halving their bad-loan ratios, which had been considered a stiff hurdle to their recovery of sound management. All of them expect to make a profit in the current fiscal year, ending in March 2006. The disposal of the legacy left by the collapse of the bubble economy certainly appears to be nearing an end.

The stagnation of Japan's economy in the "lost decade" of the 1990s was largely due to Japanese banks devoting almost all of their efforts to ridding themselves of nonperforming loans. During that period, financial institutions around the world carried out rigorous reorganizations that transcended national borders while launching a struggle for supremacy. Moves to integrate financial conglomerates that offered a diverse range of products covering insurance, securities and the credit-card business made headway.

Moves toward managerial integration have taken shape in Japan as well. Among the four main megabanks, Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc. announced a merger in October, and Sumitomo Mitsui Financial Group Inc. and Daiwa Securities Group appear to be heading toward one. Because of a delay in legislative measures, however, managerial integration that transcends the walls of securities, finance and related products are only just beginning.