Noriyuki Morimoto's Blog
Japanese Banks and the 1-Yen Search
Mar 28, 2016
After service hours, branches of Japanese banks start matching the balance of money inflows and outflows that happened over the day. This is an extremely strict process that goes on until the books match up to the very last 1 yen. There are times when many bank employees stay late into the night to search for the cause of a 1-yen discrepancy. This overtime work is well known as a symbol of inefficiency in Japanese bank management.
It is hard to justify this 1-yen search from the viewpoint of economic rationality. If it is just a matter of mishandling, it is hard to assume that the losses would accumulate on one side: small discrepancies between branches should balance out over the course of the day, and those within the same branch should break even within hours. At least, it is hard to assume there would be a loss large enough to justify the huge cost involved in matching the books every day.
The 1-yen search probably originated from efforts to build a certain culture at the bank, to prevent all mishandling and unlawful acts. Fair to say, the banks might have needed the strict application of a rule to match the figures perfectly in order to foster an appropriate culture of honesty and accuracy.
But such a culture should have been needed to win clients’ trust in the first place. In a changing environment, there should also be a shift in what it means to win the clients’ trust. However, it is not easy to change a bank’s sense of value that has been established through the perfection of activities like the 1-yen search: it has become a powerful controlling principle that borders on becoming a myth.
When you exchange money at a bank counter in Narita Airport, you are always required to fill out forms, which are always checked by the teller and another employee who sits behind her. This is seen only at banks in Japanese airports. I understand the spirit of strictness that the 1-yen search represents, but it is questionable in terms of the customers’ convenience. Is such a procedure really necessary?
All told, the 1-yen search has just become a reproduction of the banks’ internal principle of control. It seems to be undermining the banks’ ability to address changes. In Japan, we see things similar to the 1-yen search not only at banks but all over the place. In a rapidly changing social environment, the protection of an age-old control principle is extremely dangerous. It is about time Japan woke up from its myths.
Chief Executive Officer, HC Asset Management Co.,Ltd.
Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (Tokyo Office) in 1990, where he was Director & Consultant for 13 years. His responsibilities also included Benefit consulting and Financial Services consulting. Prior to joining Watson Wyatt, he was responsible for foreign fixed income investment, asset allocation and investment strategy at Mitsui Life Insurance Co., where he managed assets for the company’s variable life products and group annuities as a fund manager. He spent 2 and half years in London managing fixed income assets. He started his investment career as Japanese equity analyst at Mitsui Life in 1983. Bachelor of Arts (Philosophy), University of Tokyo (1981)