Japan’s Finance Minister Resigns : * Securities: Ryutaro Hashimoto accepts responsibility for the government’s failure to supervise brokerages. Several scandals have wracked the industry.

Responding to a public outcry over a spate of scandals that have shaken Japan’s financial community in the past few months, Finance Minister Ryutaro Hashimoto resigned Thursday to take responsibility for the government’s failure to adequately supervise the securities industry.

Hashimoto’s long-expected resignation came after parliament passed a bill modestly revising the Securities and Exchange Law.

The resignation is largely a formality since Hashimoto will remain in his position until late this month, probably just days before the Cabinet is dissolved to allow the newly elected prime minister to form a new cabinet.

The bill makes it illegal for securities companies to reimburse clients for investment losses and prohibits investors from receiving compensation from brokers. It also bans special accounts in which brokers have discretion over how the money is invested.

Problems arose early this year when tax authorities revealed that brokerage houses had paid sums of up to $1.6 billion to compensate customers for losses or below-expected returns on these accounts following Japan’s stock market crash in early 1990.

The tax authorities’ primary beef was that the brokers were deducting the cost of compensating customers from their profits, but the disclosures led to wider concerns about unequal treatment of brokerage clients.

Since before its revision the law only prohibited brokers from offering guaranteed returns, not from making the payments, the Ministry of Finance has repeatedly insisted that it cannot prosecute the brokerage houses.

Legislators also passed resolutions asking the government to follow with a more complete program of reform, including consideration of a regulatory body more independent of the Ministry of Finance. The ministry has been criticized for its close ties to the securities industry. Parliament also passed a resolution calling on the government to continue its investigation into Nomura’s role in ramping up shares of Tokyu Corp., a railroad company.

Many are skeptical of how far the reforms will go. Even the recently passed law is weak. Securities companies convicted of paying compensation to investors could be sentenced, under the new law, to up to one year in prison or fined $7,500.

Critics of the current financial regulatory system say the law is nevertheless an important beginning.

“The amendment of the securities transaction law is a major step towards introducing clearer rules of the game into the market to remove ambiguity,” said Toyo Gyohten, a former vice minister of international affairs at the Ministry of Finance. However, he added, “I don’t think Japan has reached a conclusion on what should be next.”

He said Japan must make major decisions on how it wants to regulate markets before it can move further on regulatory reform. “The fundamental question is whether society and the political climate is prepared to accept the principles of risk,” said Gyohten.

It is also far from clear whether the Ministry of Finance will agree to let go of the power it gains from regulating the industry through such informal practices as “administrative guidance.” The ministry has also refused to deny its retiring officials the opportunity to step into cushy jobs in brokerage houses--a practice that critics say has prevented the ministry from properly performing its regulatory functions.