Japan's Watanabe

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TOKYO, Sept 27 (Reuters) Japan needs to reconsider the legal barriers that currently separate its banks and brokerages in order to become more competitive as an international financial centre, Financial Services Minister Yoshimi Watanabe said.

Creating a one-stop trading exchange -- where investors could buy and sell everything from stocks to commodities -- was also necessary to draw more foreign capital to Tokyo, he said.

Watanabe, who made the comments during a group interview on Thursday, has been charged with formulating a plan to reverse Japan's dwindling influence as a financial hub.

''We're looking at several points, for example, the regulatory firewall that has protected the separation between banks and brokerages,'' Watanabe said.

''I think it is necessary for us to rethink regulations in order to keep up with the times and make the shift towards better regulation.'' Although still home to the world's second-largest economy, Tokyo is seen as in danger of falling behind smaller but more flexible financial centres such as Hong Kong and Singapore.

Financial reforms launched a decade ago paved the way for banks for banks and brokers to operate under shared holding companies. However, rules against the sharing of customer information and the cross-marketing of investment products have prevented full integration.

Proponents of deregulation have said it would let companies manage risk on a group basis, and therefore cut costs.

Eliminating the barriers would allow the sharing of customer information among group units. Brokers would then be able to target wealthy depositors at their affiliated bank.

But Watanabe stopped short of advocating complete deregulation.

''We are considering regulations that would be sufficient in terms of preventing conflicts of interest and keep banks from abusing a position of advantage.'' A SINGLE EXCHANGE Watanabe also endorsed the idea of a single exchange that would allow investors easier access to a wide range of financial products.

''I think we must build a comprehensive exchange,'' he said.

But the idea, which was suggested by members of a government panel earlier this year, will have to overcome opposition from bureaucrats, Watanabe said.

Japan's financial exchanges are supervised by different government ministries.

''The territorialism of government ministries is a hurdle to creating a one-stop exchange,'' Watanabe said.

''If we can overcome this... a single exchange will be a powerful tool for improving the international competitiveness of the Japanese market.'' REUTERS KR DS1552

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