The article discusses why Japan's financial system faced challenges after the burst of the asset-price bubble in the late 1990s. The government injected capital into banks and banks wrote off bad loans, but the financial sector remains weak. Banks struggle to make profits, have too many stock investments, and lack market discipline. The government guarantees all banking liabilities, which hinders market discipline. To improve the system, a risk-adjusted deposit insurance premium should be introduced, the postal saving system should be privatized, and corporate governance in financial institutions needs restructuring.