The Subprime Lending Crisis has evolved into a global financial crisis that severely hit major financial institutions in many countries，and to a lesser extent，affected those in Japan，where the financial system appears to be more stable than that in Europe and North America. The inherent deficiency and disadvantages in Japanese financial system，however，have come into sight，and consequently the Japanese financial system has to be modified and reformed，in order to keep up with the development of new situation. By reviewing the performance of the financial system and substantial economy of Japan，the present study tries to pinpoint the underlying causes of problems in Japanese financial system，and explore possible directions for future development of Japanese financial system after the changes in financial environment.