What is 'Keiretsu'

Keiretsu is Japanese term describing the current structure of major companies in Japan, which often results in a grouping of enterprises that take equity stakes in one another and sometimes collaborate and share projects.

Powerful families once ran many of Japan’s major industries. When the U.S. occupied Japan and rewrote the Japanese constitution after World War II, the U.S. government  busted up structures that put a few families in control, seeing them as both monopolistic and undemocratic. Keiretsus formed shortly thereafter, which involved a loose conglomeration of Japanese firms that collaborate and sometimes share the same name.

In Japan, keiretsus still represent major parts of the economy. For example, each of Japan's six car companies belongs to one of the big six keiretsus, as do each one of Japan's major electronics companies.


Keiretsus are distributors of goods around the world. Perhaps the largest and best-known is Mitsubishi, which once manufactured the A6M Zero fighter planes used in World War II. The Bank of Tokyo-Mitsubishi sits at the top of this current keiretsu. Mitsubishi Motors and Mitsubishi Trust and Banking also are part of the core group, followed by Meiji Mutual Life Insurance Company, a provider of insurance to all members of the keiretsu. Mitsubishi Shoji is the trading company for the Mitsubishi keiretsu.

While companies within the keiretsu operate in different industries, they support one another and operate as business partners in some areas.

For example, banks sometimes own a small percentage of their keiretsu members' stock and members own a portion of the bank's stock. This forms an interlocking relationship, especially if the member company borrows from the horizontal member bank. These interlocking relationships allow the bank to monitor borrowings, strengthen relationships, monitor customers and help with problems such as supplier networks.

This arrangement also limits competition within the keiretsu and prevents company takeovers by outsiders.

The Pros and Cons of Keiretsu

Keiretsus arguably result in natural synergies, lower costs and the sharing of information among customers, suppliers and employees. This typically leads to quicker investment decisions, for example.

However, critics believe that, partly because of their size, keiretsus can't adjust to market changes quickly enough for many of these investments to earn sufficient profits.

Also, some say the limited competition within the keiretsu leads to inefficient practices.

Moreover,  because executives from member companies with a bank at the center of a kieretsu have easy access capital, they might take on too much debt and utilize risky strategies that a company that depends on truly outside capital wouldn’t attempt.

  1. Interlocking Shareholdings

    Interlocking shareholding is a method of creating a unified business ...
  2. Cross Holding

    Cross holding is the practice of two or more businesses holding ...
  3. JPY

    JPY is the currency abbreviation or the currency symbol for the ...
  4. Group Banking

    Group banking is a bank plan that generally provides incentives ...
  5. Domestic Corporate Goods Price ...

    Domestic Corporate Goods Price Index Japan is an index that measures ...
  6. Loose Credit

    Loose credit is the practice of making credit easy to come by, ...
Related Articles
  1. Investing

    How the Volkswagen and Mitsubishi Scandals Relate

    Mitsubishi Corp. admitted to cheating on fuel economy data. Will it face the same consequences as Volkswagen?
  2. Investing

    Bank of Japan Announces Negative Interest Rates

    In a surprising move after a two-day monetary review meeting that ended Friday, the Bank of Japan adopted a negative interest rate policy in an attempt to revive country’s economy.
  3. Investing

    Five ETFs To Cash In On Japan’s Rise

    With the election of Shinzo Abe and birth of “Abenomics”, things are looking up for Japan's exporting dependent nation. For investors, Japan may finally be awaking from its doldrums.
  4. Insights

    Japan's Heavy Exposure to Rising Rates

    While Japan has seen falling interest rates for over two decades, quantitative easing could mean this is about change. Just how exposed is the country?
  5. Insights

    3 Economic Challenges Japan Faces in 2019

    Understand the important challenges facing Japanese prime minister Shinzō Abe and the Bank of Japan as they try to help Japan's economy avoid deflation.
  6. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
  7. Insights

    Toshiba Highlights the Need for Faster Corporate Reform in Japan

    There is no doubt that Japan is still a leader in technology and production excellence, but that edge is in danger of being squandered.
  8. Investing

    The 5 Largest Japan ETFs (EWJ, DXJ)

    Discover several of the largest Japan ETFs, as measured by assets under management, and learn about the investment exposure each provides.
  9. Investing

    JSC Vs. EWJ: Comparing Japan ETFs

    Learn about the Japanese markets, the challenges faced in 2016 and comparative analysis of the SPDR Small Cap Japan ETF and the iShares Japan ETF.
  1. What factors are the primary drivers of banks' share prices?

    Bank share prices are driven by the same forces as any other shares including market sentiment, expectations about the future ... Read Answer >>
  2. Is It a Good Idea to Buy Mutual Funds From Banks?

    Mutual funds can be purchased through many different financial institutions, including banks. Read Answer >>
  3. What economic indicators are important to consider when investing in the banking ...

    Find out which economic indicators are most useful for investors in the banking sector, especially those influenced by central ... Read Answer >>
  4. What are the 9 major financial institutions?

    There are nine major types of financial institutions. Understand the major types of financial institutions that exist and ... Read Answer >>
Trading Center