A view from Tokyo

Japan, the world's second-largest economy, and Tokyo, one of the world's major financial centres, has one of the smallest legal communities per capita of any developed country.

Until the early 1990s, the economy was almost closed to the foreign community and the main focus of cross-border legal services in Japan related to outward investment. Since then, the economy has opened up considerably due to significant restructuring and deregulation. Japanese companies have looked for foreign investors for significant parts of their businesses and actively seek funding from foreign institutions and capital markets. Outward investment also remains important, particularly in the area of developing infrastructure projects in emerging economies elsewhere in Asia, the Middle East and South America; and of course, many large Japanese companies and financial institutions continue to operate on a global basis.
Despite this high level of commercial activity, Tokyo has a relatively
small legal community to serve its needs. Most of the key international law firms have offices there. And while they have seen significant expansion in recent years, the size of their offices are small by comparison with their presence in other major centres, such as London or New York. The growth of the international law firms correlates closely with the expansion and successes of the foreign community in establishing and building their operations in Japan. Most international law firms focus on a limited range of activities, predominantly relating to cross-border banking and finance as well as some M&A work and equity offerings. As more and more lawyers around the globe are experiencing life in Tokyo, many are finding it a pleasant place to be; thus the available pool of foreign lawyers in Japan is increasing.
The Japanese domestic legal market, as one would expect, is also in a considerable state of flux. Traditionally, Japanese law firms have been very small in size (in most cases having less than 30 lawyers). Japanese law firms in most cases remain a collection of highly qualified individuals coming from an extremely small pool of people who have passed the excruciatingly difficult Japanese bar exam (bengoshi). Many bengoshi have a dual US or UK legal qualification. Over the past few years, Japanese firms have also seen significant expansion to meet increasing demand for their
services, generally through organic growth, but most recently through merger. The largest Japanese firm, Nagashima Ohno & Tsunematsu, was indeed created in January 2000 by such a merger and has about 100 bengoshi in total. The remainder of the 'big four' Japanese law firms are Anderson Mori, Mori Sogo and Nishimura & Partners. There is also a range of specialised firms with specific expertise in finance, M&A, litigation, intellectual property (IP) and insolvency procedures. The hurdles for passing the Japanese bar have recently been lowered to allow more bengoshi to qualify, so this expansion is expected to continue. As in other jurisdictions, law firms face increasing competition for recruitment from the investment banks.
The future for the international and domestic law firms in Japan looks bright. The international law firms are also making bold moves in the market, establishing joint ventures with small domestic law firms in order to offer a one-stop shop. While it will take a number of years for these joint ventures to offer a truly combined Japanese and foreign law service of the highest quality, the first steps have been taken.
The Japanese legal market has, like Japan itself, embarked on a process of restructuring, the final form of which is not y et apparent. What is clear is that there are significant opportunities for ambitious bengoshi and foreign lawyers to develop their careers, and given the size of the legal market, it is often with considerably more responsibility than that afforded in other jurisdictions.
Salim Nathoo and Tak Matsuda are lawyers at Allen & Overy's Tokyo office