Pachinko is a frenetic vertical pinball game on which 30 trillion yen (£125 billion) is gambled illegally in Japan every year, and the industry is poised for a collapse that could force thousands of operators out of business in favour of regulated casinos.

Driven by fiercer regulation and a consumer credit crunch that has directly hit pachinko’s heaviest players, key segments of the industry are expected to contract by as much as 50 per cent over the next two years. Industry experts forecast that about a third of Japan’s 15,000 pachinko parlours — deafeningly loud, smoke-filled caverns where customers lose themselves for hours — may close.

But the imminent pachinko crisis will “vastly accelerate” plans by the Japanese Government to legalise casinos, one of the industry’s leading figures told The Times. To compete with Macau and other Asian cities where casino gaming is set for astronomic growth, Tokyo and other big Japanese cities may have their first Las Vegas-style casinos within three years.

According to Kunihiko Yogo, the chief executive of Aruze, one of Japan’s “big three” pachinko machine manufacturers, recent changes in the law have set the industry up for a crash. “There is panic among pachinko operators,” he said, “and there will absolutely be a big shakedown in the near future. Even the mass retirement this year of the [savings-rich and time-rich] baby-boomers will not stop pachinko shrinking.” However, Mr Yogo is prepared. His company holds a 24.5 per cent stake in the US gaming giant Wynn and, thus, has exposure to the growing casino market in Asia. He said that it was “highly probable” that Wynn would enter the Japanese casino market quickly.

Pachinko and its sister game pachislo depend on a convention whereby the authorities look the other way as the machines are used as a conduit for gambling. Without a loophole that allows the ball bearings won during games to be exchanged off the premises for hard currency, pachinko would hold little appeal.

For nearly 30 years, and in a country in which most forms of gambling are tightly restricted, the receipts from pachinko have represented about a third of all Japanese leisure spending. During that time the industry has undergone a series of boom-and-bust cycles, in which periods of rising interest have been scotched by tighter regulation.

But the latest cycle may cause unprecedented financial pain, Mr Yogo said. The present batch of high-jackpot games that, on average, take about Y50,000 an hour from players are to be banned from June, and the new, low-jackpot crop will take only Y10,000.

Mr Yogo said: “Pachinko halls used to be for everyone, but now they depend very greatly on the heavy gamblers. When the law changes, those players are going to leave and they will just never go back to the smaller-payout machines.

“Across Japan medium and small-sized operators will go bust overnight.”

Game over?

–– Japan’s most popular leisure activity with receipts of 30 trillion yen, 17 million players and 15,000 outlets across Japan

–– Pachinko arrived in Japan in the 1920s. Soared in popularity after Second World War when machine makers were able to take advantage of a surplus of ball bearings

–– Japan’s laws against gambling are circumvented by having players “cash in” their token winnings at a store outside the main pachinko parlour

–– The “kankin” exchanges are usually run by former policemen

–– Pachinko has long been associated with the ethnic Korean population of Japan. By some estimates 90% of parlours are operated by ethnic Koreans — giving rise to speculation that a portion of earnings is regularly remitted to North Korea

–– Number of players has been declining by 5% a year for ten years. Analysts expect pachinko market to decline by 11% next year

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