Video Produced by Reuters Plus for Fincity.Tokyo

Foreign investors are pushing up Japanese stocks. What is behind this momentum for Tokyo?

Sakaguchi-san: First of all, CPI over the past twelve months in Japan has not only stayed positive but is also steadily increasing. This means global investors can feel confident that Japan’s decades-long deflation is at an end.

Second, Japanese corporations have made serious efforts on ESG disclosure. Thanks to the FSA's guidance and encouragement for companies to disclose this information in financial statements, global investors have been able to see visible progress of Japanese companies’ commitment to ESG.

Takegoshi-san: I agree with Sakaguchi-san. Also, we're not seeing any major shockwaves which have hit other markets. I think this stability and predictability give investors confidence. And we shouldn't forget that this country is home to many household manufacturers supported by extensive supply chains. In other words, the real economy that exists here is winning a lot of traction from investors.

Chang-san: I actually see many successful entrepreneurs moving to Japan from Silicon Valley, Singapore and other places. There are big business opportunities here, with a lot of spaces to digitalize. There’s a lot of government support, tax support will happen soon and we have visa support for global entrepreneurs and startups already. Also, Japan is just such a good country to live in, right?

How can we make Tokyo's finance ecosystem truly competitive globally?

Takegoshi-san: The massive amount of personal financial assets kept as cash and deposits has always been a challenge for Japan. But now the central government has realized the potential of unleashing that wealth, as seen in the plan to double asset-based income. There is also a recognition that we need to upgrade our asset management ecosystem.

We need to make the asset management market much more diverse by attracting more foreign firms and enhancing our domestic capabilities. There have been attempts to do this before, but this time the various stakeholders involved are aligned to a common vision. That is very encouraging.

Sakaguchi-san: From an asset management point of view, Japan can be hard to understand when it comes to regulations and how to apply for licenses. But we have seen great progress in the past two years to make Japan more accessible for foreign players, not least that the FSA opened up for English applications for the first time. We need more of this, so that we can send out the message that Tokyo is open for business.

Chang-san: We need more global talents, like investors and entrepreneurs, to truly understand the Japanese market. I’d like to see more information in English, not only about regulations but also the difference in customer behavior. We can do much more to verbalize that and explain what the business opportunities are.

Where do you see innovation in Japan's finance space right now?

Chang-san: To me, innovation means two things. First, digital transformation of how we do business, and second, building new businesses with new technologies.

As for the first, banking, insurance and other financial institutions have been using AI, blockchain and machine learning to optimize back office operations and how they engage with their customers. I think that will continue to grow.

In the startup space, we see most of the fundraising for fintech happening in the payment area. Regulations have changed. Salaries, for instance, can now be paid digitally. We see many startups gaining momentum against that background.

Sakaguchi-san: AllianceBernstein spends quite a bit on digitalization. For example, our equity analysts and portfolio managers don’t collect data by themselves anymore. We have a team of data scientists who can help them collect and analyze big data. Also, in the corporate bond market, where liquidity is very fragmented, we let our AI chatbot, Abbie, to do the hard work. Abbie will search the market and give us a list of executable transactions. If it looks good, you click the button and say thank you to Abbie.This is how asset management works outside of Japan, and it will become widespread in Japan too. 

Once it does, it will be a game changer for the industry and push up the demand for fintech. It will prime the Japanese economy from the bottom up and force asset managers to think outside the box.

Takegoshi-san: This is a growing segment. Portfolio managers are increasingly applying digital capabilities to make investment decisions. Apart from digitalization, I should add that we're seeing entrepreneurship in asset management as well. In the Kabuto-cho neighborhood near the Tokyo Stock Exchange, we are seeing a new cluster of asset managers. Many are successful industry veterans who are now trying something new. It's very refreshing to see these people bringing in new firms and new approaches to bring positive impact to the industry.

Have corporate governance reforms in Japan, including the efforts to address gender equality, been successful?

Sakaguchi-san: The Stewardship Code has improved engagement between corporations and asset owners, and invigorated asset management. As an asset manager, we ask companies very difficult questions and I feel they have started taking this process seriously.

On diversity, we still have room to improve. As the only female CEO in Japan’s asset management industry, my question to domestic firms is: Are you competing in Japan or globally? That said, I do see diversity happening. We will have more female CEOs. Fintech companies already have many female executives. So I’m optimistic.

Chang-san: Many people outside of Japan see Japan lacking diversity in terms of gender and nationality. When I was first hired by Plug and Play Japan, my supervisor in Silicon Valley was doubtful about hiring a foreigner at first because he’d heard the finance industry in Japan was very conservative. But in reality, I think the gender and globalization situation in Japan has been changing a lot.

The number of female executives is increasing. The ratio of female investors across venture capital is still only about 16%, but I’m confident this will increase. The government is pushing and there is broad support within the startup ecosystem.

Takegoshi-san: Japan Exchange Group has asked firms with a price-to-book ratio of less than 1 to show plans to improve capital efficiency. This will spur companies to make long-awaited improvements.

On the dialogue between companies and investors, I’d like to share one initiative that FinCity.Tokyo is doing. About 200 or 300 of the 3800 or so companies on the Tokyo Stock Exchange have the attention of overseas investors, but the rest go unnoticed. So we have launched an initiative to help small and medium listed firms improve their growth stories and disclosure. This includes ESG considerations. There are many positive stories here in Japan, including in inclusion and diversity, that have yet to be told.

Where do you see Tokyo as a finance hub in five years’ time?

Takegoshi-san: We will have more international asset managers and asset owners with offices in Tokyo, who can act as eyes and ears on the ground to, for instance, discover firms that have so far gone unnoticed.

In the tech world, we see more non-Japanese programmers who studied in Japan and then stayed to pursue a career. Many of these speak three languages—Japanese, their native tongue, and English—or more. I hope we can see that in the financial services industry, too. Multilingual people with good cross-cultural literacy would contribute a lot to our asset management ecosystem.

Chang-san: I think we will see more global entrepreneurs and investors come to Japan and more Japanese entrepreneurs going outside of Japan. I think everyone in the startup scene and the finance industry in Japan, including myself, should spend more time to learn what's happening globally. Now is the time to not only think about how to compete in Japan, but also how we can be number one globally.

Sakaguchi-san: I’d like to see more asset managers with the expertise to invest in innovators here. Why not invest the money of Japanese asset owners and households into Japanese startups? It’s Japan's money.

Also, asset management companies can serve as bridges for long-term investors to access projects in green technology. Manufacturing and technology have always been strengths of Japan. Today, with energy a critical issue, we should remember that Japanese corporations possess specialized renewable energy technology. Right now, the technology is advanced but the financing from the government, asset owners and others is slower. I’d like to see much more progress here, including in transition finance, which is something that sets Japan apart globally.

It's a bit aspirational, but I think Japan would have a unique competitive edge here.