Today's start of the new fiscal year also ushers in a new era for the nation's financial sector as some key measures that form the backbone of the "Big Bang" financial system deregulation take effect.

Beginning April 1, restrictions on foreign exchange transactions will be eased, a system of prompt corrective action will be introduced for banks with low capital adequacy and the Bank of Japan will gain some autonomy.

The new BOJ Law, which takes effect April 1, includes its first changes in 56 years and clarifies the role of the bank's Policy Board as its highest decision-making body. In addition, brokerage commissions on securities transactions exceeding 50 million yen will be liberalized.

The changes to the country's financial structure got their impetus in November 1996, when Prime Minister Ryutaro Hashimoto announced his plan to revive Tokyo's markets by making them more "free, fair and global" in an effort to stem an exodus of capital.

The new version of the Foreign Exchange and Foreign Trade Control Law that takes effect liberalizes, among other things, cross-border capital transactions and opens up the foreign exchange business by abolishing the authorized foreign exchange bank system.

These measures are expected to help promote the integration of domestic and foreign markets and thereby lead to a revival of capital and financial markets here. Under the revised law, companies other than banks will be able to enter the currency exchange business and firms and individuals can open overseas deposit accounts.

As a result, consumers will be able to make purchases at supermarkets and mail-order catalogs in currencies other than yen, and firms such as trading houses will be able to make settlements through multinetting schemes and bypass banks. But unless other regulations binding the financial industry are lifted, the outflow of Japanese assets might accelerate.

In fact, some fear that the new foreign exchange framework will lead to a flight of capital to more open markets and say the entire Big Bang framework needs to be implemented as swiftly as possible. Prior to these reforms, financial firms lagged behind international standards in such areas as information disclosure and in their inability to operate outside of the Finance Ministry's convoy framework that regulated the industry based on its weakest members.

With the growing globalization of the economy and the finance sector, it has become increasingly clear that both regulators and financial institutions themselves need a greater sense of responsibility.

In an effort to assess financial institutions' operations based on more objective criteria and reduce the scope of arbitrary decisions by regulatory authorities, beginning in fiscal 1998, banks will be classified into four categories depending on their capital-to-asset ratios.

Banks will be responsible for checking their own assets to determine with what certainty loans can be reclaimed, padding their loss reserves accordingly and calculating their ratios.

The benchmark ratio for adequate capital is 8 percent for banks with overseas operations and 4 percent for those operating solely in Japan.