Tokyo is set to relaunch a bid to establish itself as Asia’s leading financial centre, according to a report today in the Financial Times. The effort is being spearheaded by Tokyo Governor Yuriko Koike and will call on global investment banks to reverse years of downsizing in Japan.
The process will begin with an appraisal into why Tokyo has proved elusive and will also deal with other well-documented issues including the language barrier, high personal tax rates, arcane regulation and the dominance of the bond market by the Bank of Japan.
Tokyo’s financial scene has evolved into a closed-off Galápagos.
The panel which has been set up by Koike and includes Jonathan Kindred, chief executive of Morgan Stanley Japan, and Atsushi Saito, chairman of KKR in Japan, will hold its first meeting this Friday with an interim report on Tokyo’s struggle due to published in six months.
Koike commented that Tokyo’s financial scene had evolved into a closed-off “Galápagos” and that “regulations and tax systems that are far from global standards have prompted the world’s financial institutions to go to Singapore, Hong Kong and Shanghai where it’s easier to do their jobs”.
Yasushi Ando, the chief executive of Japanese private equity firm New Horizon and an adviser to Koike, added that language was just one of many obstacles encountered.
He said: “Until now, most things have been decided by the three major megabanks and brokerages. We need to find the underlying causes on why Tokyo has failed to achieve a status similar to Hong Kong and Singapore without being bound by vested interests of the industry.”
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The latest campaign is the latest attempt to promote the idea that Japan’s deep markets, acquisitive companies, globally liquid currency and massive household savings make it a natural international hub. Although previous campaigns have stalled, this time may prove to be a turning point.
Until now, declining domestic markets and negative rates have made both household and corporate Japanese investors far more interested in overseas assets than before.
Also in Tokyo’s favour is that politically, it is a turbulent time to be channelling talent to London and Hong Kong, and even New York which may take some time to settle following Donald Trump’s inauguration.
Tokyo is currently ranked fifth behind London, New York, Singapore and Hong Kong. Financial services represent about 5 per cent of Japan’s gross domestic product, compared with about 12 per cent in the UK.
The recent tally of departures by international banks from Tokyo has been unusually high even after ‘Abenomics’ policies have attempted to convince Japanese households to move some of their $17 trillion of financial assets from bank deposits into investments.
RBS, HSBC, Standard Chartered, Société Générale, Merrill Lynch and Citigroup have either reduced or abandoned their presence in Japan, with the majority citing the difficulties of making inroads into business areas where domestic incumbents can undercut any challengers.
Although Prime Minister Abe has made efforts to cut Japan’s corporate tax rate to 30 percent, the rate is still high compared with 20 per cent in the UK and around 17 percent in Hong Kong and Singapore.
The panel is expected to propose that Tokyo be designated a special economic zone to allow a further reduction in corporate taxes to at least 20 per cent.