The bright lights of the Ginza commercial district are shining with a new intensity for U.S. banks.

American bankers here say that a series of Japanese financial reforms, combined with a growing demand for Western-style pension fund management and deepening problems facing local banks, are helping to open up markets that had historically discouraged expansion.

Led by Citicorp, Chase Manhattan Corp., and J.P. Morgan & Co., U.S. banks are focusing on a range of specialized activities including asset management, securities custody and processing, capital markets, and loan securitization.

"This market is by far the biggest in Asia," said Gilbert Van Hassel, president and chief executive officer of J.P. Morgan Trust Bank Ltd. "It dwarfs everything else."

U.S. institutions' shift toward these specialities marks a turning point in their Japanese experiences. Though some, such as Chase , opened offices as early as 1947, U.S. banks did not really build up their businesses until the late 1970s, when they piled into foreign exchange and extending dollar-based import financing to Japanese banks and corporations.

That business became increasingly unviable after Japanese banks came into the market in the mid-1980s with cutthroat margins. By the late 1980s, U.S. banks were putting Japanese operations on hold, yet were unwilling to pull out completely for fear of losing future business.

Since last year U.S. banks have become active again, with institutional and retail asset management seen as one of the most promising sectors. Though Japan has one of the highest savings rates in the world, yields on those accounts were historically extremely low. Japan's aging population, bankers said, is putting enormous pressure on pension funds to produce higher yields.

"By 2020 one-third of the population will be over 60," said Masayuki Yasuoka, managing director and senior country officer for Bankers Trust New York Corp. "Money is simply not being properly used, and Japan has to open up."

As a result, U.S. banks have been rapidly building an institutional funds management business. Citicorp's assets under management climbed 40% in 1997, to around $12 billion. They tripled at Bankers Trust in two years, to $14 billion, while rising from zero to $4 billion at State Street Corp. over the same period.

Bankers say those amounts could easily double over the next two years.

"The decision by Nempuku to award fund management to foreign companies was a wake-up call for Japanese fund managers," said William E. Kirk, vice president and general manager at Bank of New York, referring to recent moves by the state pension fund to hire foreign fund managers. "Everyone is trying to get a piece of the pie."

Aside from asset management, Chase Manhattan is expanding in a broad range of activities such as custody, bond and equity trading, derivatives, foreign exchange, and funds transfer.

J.P. Morgan is heavily involved in trading and underwriting. Citicorp is targeting global corporate banking and local consumer banking. State Street Corp. is focusing on both securities processing and investment management, while Bank of New York Co. is heavily involved in custody, trade finance, and correspondent banking.

Some U.S. and European financial institutions see alliances with Japanese banks as a quick way to crack the market. Bankers Trust, for example, has struck a deal with Nippon Credit Bank. Swiss Bank Corp. established a joint venture with Long Term Credit Bank of Japan for securities business, private banking, and investment trusts.

Similarly, Putnam Investments, the Boston-based mutual fund company, is developing new products with Nippon Life Insurance. Salomon Smith Barney, a unit of Travelers Group, has set up an asset management consulting firm with Nikko Securities, and Merrill Lynch & Co. has acquired part of Yamaichi Securities in a bid to establish a broad distribution network.

"As balance-sheet management becomes more of a factor, we expect to see more of these sorts of transactions," said Mike de Graffenreid, Citicorp's country corporate officer in Japan.

In consumer ambitions, Citicorp is pretty much alone. The bank, which recently announced plans to merge with Travelers Group, is forging ahead with a nationwide programs for telephone and personal-computer banking, supported by 19 branches and links to 60,000 automated teller machines.

The New York bank is seeking to gain a further edge over local retail competition by marketing foreign exchange accounts in 14 currencies, global cash cards, stored value cards, and dollar-based credit cards, which are unavailable from Japan's domestic banks.

"You can't be a global consumer bank without being in the world's second-largest economy," said Michael S. Knapp, vice president and division head of Citicorp's consumer operation in Japan.

This push by U.S. banks has been aided by a broad series of governmental reforms this month. Among the initiatives that could ease entry by foreign banks are allowing loans to be converted into securities, allowing a broader range of derivatives and retail mutual funds to be sold, reforming bank supervision, and eliminating fixed commissions on securities transactions.

The measures also abolish remaining foreign exchange controls, reduce barriers between banking and securities-related operations, and give Japanese financial institutions more funding options.

Some bankers view the current round of changes as the third in a series of imposed conversions to Western ways.

The first, they say, was Commodore Matthew Perry's 1854 treaty that forced Japan to begin trading with the West. The second was the democratic constitution and revised banking regulations that General Douglas MacArthur oversaw in 1947.

Though Japan has had a way of resisting Western practices in the past, things may be different this time around.

Mounting bad loans and a worsening economy, bankers said, have put Japanese banks in a far weaker position than they were a few years ago. Many simply don't have the capital they need to compete, and the outlook is hardly cheerful.

Department store sales have plunged, bankruptcies are mounting, and commercial property prices have fallen 70% since their peak several years ago. Meanwhile, the yen has fallen from a peak of around 80 per dollar several years ago to around 130. Local bankers are also hurt by falling stock prices after a plunge in the Nikkei market index from a high of 39,000 in 1989 to around 16,000 today.

"Japan's economy remains stagnant, with increasing downward pressure on economic activities," the Bank of Japan noted in a recent monthly report.

Despite a massive $120 billion government spending program designed to boost the Japanese economy, few here expect any growth soon.

"Consumer and business sentiment is so bad that any tax cut is likely to go directly into savings, rather than toward consumption," said Scott J. Brown, an economic analyst with Raymond James & Associates Inc. "It's a frightening prospect, but Japan's economic troubles could be just beginning."

Like U.S. banks in the late 1980s and early 1990s, Japanese banks are slashing domestic lending and retreating from international activities. Their pullback has extended to the United States, with asset totals dramatically falling in recent years.

Still, bankers say it remains to be seen just how much Japan is willing to allow U.S. and other foreign banks to gain market share. "We need to build a presence now so we'll be in a position to move later," said one U.S. banker who declined to be identified.

"But everyone is still jockeying and watching everyone else, and Japanese banks still have a powerful hold over this market."

There is nothing to prevent Japan's Ministry of Finance, already famous for imposing bureaucratic obstacles, from adding still more regulations to limit foreign banks, the same source added.

Bankers pointed out that the Japanese opening does not guarantee success for foreign institutions. Without adjusting to the culture and customs, simply transplanting U.S.-made financial instruments won't work.

"Japan has to change," Mr. Yasuoka said. "But foreign banks will have to change as well."

Japanese bankers also warn they are not about ready to roll over and play dead.

"This is a tough market, and foreign banks won't have it easy," said Minoru Eda, deputy president and head of global finance and investment banking at Sanwa Bank Ltd. "Don't forget, this is our home market, and we know our customers better than anyone else."

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