July 1, 2008 / 10:04 AM / 11 years ago

Japan regulator welcomes foreign funds

TOKYO (Reuters) - Japan is not closed to foreign investors, including funds that press for increased shareholder rights, the head of financial regulation in the world’s second-largest economy said on Tuesday.

Japanese Financial Services Agency Commissioner Takafumi Sato speaks at the Reuters Japan Investment Summit in Tokyo July 1, 2008. REUTERS/Toru Hanai

Takafumi Sato, commissioner of the regulatory Financial Services Agency, also told the Reuters Japan Investment Summit that he was in favor of rules on new share issues, endorsing the Tokyo Stock Exchange’s push to protect minority shareholders.

As head of the FSA, the Oxford-educated Sato has been charged with revitalizing Tokyo as a world financial centre, a job that some foreign investors have derided as an impossible mission.

The FSA is particularly worried that Tokyo is falling too far behind more flexible financial centers such as Hong Kong and Singapore.

Western activist funds such as The Children’s Investment Fund (TCI) and Steel Partners are pushing hard for higher returns and greater shareholder rights in Japan, although much of their efforts have been so far knocked back.

While Sato declined to comment specifically on TCI and Steel Partners, he did say that Japan is not closed to foreign investors, including those who rally for change.

“The activities of foreign funds would also contribute to improve the so-called corporate governance on the part of Japanese listed companies,” Sato said.

“The FSA treats financial firms and investors equally, regardless if they are domestic or foreign,” he said.

Faced with sluggish growth and a rapidly shrinking population, Japan is desperate for foreign investment and is especially keen to woo hedge funds, which managed an estimated $1.75 trillion globally at the end of March, according to Lipper Tass.

Sato also said he was also in favor of rules on the issuance of new shares, in order to protect minority shareholders.

The Tokyo Stock Exchange said last year some firms were abusing a framework that allows them to issue new stock to a third party, often to an offshore fund about which little is disclosed.

“If (stock) exchanges introduce some minimum requirements ... reflecting the spirit of protecting investors, it would be a desirable thing,” Sato said.

MISSION IMPOSSIBLE?

The FSA in December rolled out an extensive plan to make Japan more competitive, which has led to the elimination of dual taxation for offshore funds, and the relaxing of barriers between banks and brokerages.

“Tokyo’s desire to entice foreign investors doesn’t necessarily match with the reality,” said Kirby Daley, senior strategist at brokerage Newedge Group.

But Daley, who was formerly based in Tokyo and now works in Hong Kong, said his new city of residence offers more than his former home.

“It’s a more transparent regulatory regime, especially in regard to the fund industry, which is a huge part of finance,” he said.

Under a bill passed by Japan’s parliament earlier this month, penalties were stiffened for insider trading and false disclosure, in the hope of improving market transparency.

Banks and insurance firms are now able to engage in investment advisory business, which was previously banned, as well as emissions trading and Islamic finance.

The law allowed for the creation of a market for professional investors, which requires less disclosure, and relaxed restrictions on exchange-traded funds, allowing for commodity-based ETFs.

(Additional reporting by Tony Munroe)

Editing by Sophie Hardach & Kim Coghill

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