The Japanese-qualified lawyers known as bengoshi are finding more work in a part of the legal job market that barely existed in Japan a decade ago: in-house positions. According to the Japan Federation of Bar Associations (JFBA), 770 bengoshi are now working in corporate law departments, up significantly from 64 in 2001. However, they still make up a tiny fraction of the 32,000 bengoshi currently qualified to practice. (Only bengoshi can represent clients in Japanese legal matters; foreign attorneys who are licensed to practice in Japan can only provide legal advice about their home country.)

Lawyers and recruiters say that several factors have led to the in-house hiring increase. The economic downturn that followed last year’s devastating earthquake and tsunami has forced companies to cut costs, which has meant that more legal work is being handled at headquarters. And scandals such as the one at Daio Paper Corporation—whose former chairman, Mototaka Ikawa, was sentenced in October to four years in prison for using the company’s money to pay off gambling debts—have prompted a greater emphasis on compliance.

But Yasushi Murofushi, president of the Japan In-House Lawyers Association, says that the biggest reason that there are more bengoshi working at companies is that there are simply more bengoshi. The establishment of graduate-level law programs and changes in the national bar exam, all driven by the Japanese government, have produced a glut of young lawyers looking for jobs, according to Murofushi, who is also general counsel for Credit Suisse Securities (Japan) Limited in Tokyo.

According to statistics from the JFBA, the number of bengoshi has increased by 12,000 since 2005, equal to the growth in bengoshi between 1950 and 2001. The result is a simple matter of supply and demand: Where companies once wouldn’t spend the money needed to bring an elite bengoshi in-house, now they have their pick of potential hires who are eager to find any work at all and at much lower pay rates.

While salaries can vary among different firms and sectors, Murofushi estimates that newly qualified bengoshi typically earn about 10 million yen ($125,000) a year at a big-name Japanese law firm. The median in-house starting salary is half that, he says.

Tadaaki Sugiyama, general counsel at Kao Corporation, agrees that the glut of new graduates has given corporations the chance to hire well-qualified bengoshi at lesser salaries. "For me it’s a good chance to hire a person with professional knowledge at a lower cost," he says. Sugiyama, who also serves as president of the 1,000-member Association of Corporate Legal Departments, adds that the kind of work done in-house has increased from general legal tasks to broader issues related to matters of law such as compliance work, risk management, and internal auditing.

While many of the bengoshi heading in-house are young attorneys, established lawyers at some of Japan’s biggest firms are making the jump as well. Daisuke Watanabe took a job with Fast Retailing Co. Ltd. (parent of clothing retailer Uniqlo) almost two years ago. He saw the chance to expand on the extensive work in outbound investment he did while at Anderson Mori & Tomotsune, where he was an associate for nine years. "Uniqlo is expanding its business overseas, so I was interested in legal work at the company," he says.

Watanabe says that the biggest effect of moving in-house is that he’s now part of Uniqlo’s decision-making process. He says that rather than simply provide legal advice, he helps to guide the business as a whole. Anderson Mori "offered alternatives," Watanabe adds, "but they didn’t make decisions."

Watanabe is not alone in wanting to play a bigger role in the development of a business. Yoshihiro Akimoto recently joined Japanese social networking company Gree Inc. from Nishimura & Asahi for that very reason.* "I felt that working in a position more closely linked to the business itself would be a great way to learn quickly not just the legal knowledge required of a specialist bengoshi, but also to learn firsthand what is required of a bengoshi by a corporation," says Aki­moto. He serves as manager of the Tokyo counsel team in Gree’s global legal and intellectual property division.

While Japan’s "Big Four" firms have taken note of the growth of in-house counsel, they don’t yet see it as a source of attrition for themselves. Japan’s in-house market is still far from being as saturated as that of, say, the United States. "We see that some companies may be [hiring staff lawyers], but it’s not drastic at all," says Masanori Sato, a Tokyo-based partner at Mori Hamada & Matsumoto.

And Japanese firms have already realized that there can be an advantage when one of their lawyers makes a lateral move to a corporation. As Taro Tsunoda, a Tokyo-based partner at Anderson Mori, notes, "If you can place your associates [at a company], they could bring work from potential future clients."

Email: tbrennan@alm.com.

Correction, 3/4/13: A previous version of this story mistakenly described Gree Inc. as an American company. It was founded in Tokyo in 2007. We regret the error.