At a time of global uncertainty, Tokyo has emerged as a strong contender for Asia’s next financial centre. FinCity.Tokyo’s webinar on February 15 explored the attraction and potential of Tokyo as a global financial hub. Joining the discussion were KOIKE Yuriko, Governor of Tokyo, NAKASO Hiroshi, Chairman of FinCity.Tokyo, Karsten Kallevig, Special Advisor to the CEO at Norges Bank Investment Management, and Chris Durack, Co-Head of Asia Pacific at Schroders. The panellists outlined several reasons why the city is not only full of business opportunities right now but should be on the radar of global investors for years to come.
1. Tokyo is Full of Financial Business Opportunities
Tokyo is a Global Connector
Investors’ bullish view of Japan was clearly demonstrated on February 15 when the Nikkei 225 topped 30,000 for the first time since 1990, the same day newspapers reported that the country’s gross domestic product grew at an annualized 12.7% on the quarter during October–December. Fittingly, this chart-topping occurred on the very day FinCity.Tokyo held its online event to discuss Tokyo’s financial potential.
“What this clearly shows is the strength of Japan’s industrial sector,” said NAKASO Hiroshi, Chairman of FinCity.Tokyo, during the webinar. “Japan is one of the G7 industrialized economies located in the Asia Pacific time-zone, well-connected to New York and London, which are in different time zones. This means that Tokyo can offer seamless financial services that work around the clock.” While Hong Kong will remain as the gateway to China and Singapore is a springboard into Southeast Asia, he explained that Tokyo can be seen as a global connector.
There is Huge Pent-up Demand
Japanese households have accumulated a whopping 1,900 trillion yen in household assets, more than half of which is sitting in low-interest savings accounts, waiting to be invested for higher returns. Due to concerns over the pandemic, Japan’s savings rate rose to the highest level in two decades last year, up to 35.2% on year 2020, according to data from the Ministry of Internal Affairs and Communications. As Japan’s population gets older, there is a pressing need to put this accumulated wealth to work.
There will also be excellent investment opportunities as Japan moves to resolve key challenges such as digitization and climate change. The key will be to ensure assets can easily connect with opportunities. “What we need is a financial centre that connects the money and the investment demand to ensure an efficient flow of capital to every industrial sector in every corner of Japan,” said Nakaso. “Such a new financial intermediary function requires a new breed of financiers with high skills, working together with traditional players.”
There are Enormous Investment Opportunities
In fact, many foreign institutional investors are already taking advantage of the enormous investment opportunities. “When we think about Tokyo we see enormous opportunity,” emphasized Chris Durack, Co-Head of Asia Pacific at Schroders, which has operated in Tokyo since 1974. Karsten Kallevig, Special Advisor to the CEO at Norges Bank Investment Management, agreed. The company, which manages Norway’s US$1.3 trillion sovereign wealth fund, was invested with more than US$70 billion in Japan’s equities last year, almost US$40 billion in fixed income and north of US$1 billion in unlisted real estate.
“When you look at it as an asset owner, it’s very obvious,” said Kallevig. “Japan is the third largest economy in the world and Tokyo is its capital. It is the world’s largest metropolitan area and the yen is one of the major reserve currencies globally. It plays a very natural role in the financial world and it should be, in my opinion, a global financial hub. It is stable, predictable, and safe.”
2. The Financial Business Opportunities in Tokyo Will Continue to Expand
Tokyo and Japan are Serious About Rapid Reform
Governor Koike, who drew up the “Global Financial City: Tokyo” Vision in 2017 and has led the implementation of various measures to attract financial firms and professionals, stressed during the discussion how serious the Tokyo Metropolitan Government (TMG) is about the project. Pointing out that past efforts had mostly resulted in “no action, talk only,” she emphasized that the Vision this time specifies the various roles played by TMG, the national government, the private sector and the public-private partnership represented by FinCity.Tokyo. Within this context, important regulatory and tax reforms have been implemented at the national level, which will contribute greatly toward realizing Tokyo’s ambitions. Nakaso underscored that many of these reforms were “unimaginable a year ago.” This, he said, proved the government’s determination to cement Tokyo’s position as a global financial hub.
Under its ‘Japan as an International Financial Center’ initiative, the national government has moved to reduce the burden of corporate, inheritance, and income tax, and also relaxed residence status and visa requirements. In addition, both TMG and the national government are strengthening their English-language consultation systems to attract foreign financial companies and personnel.
Tokyo will be a Major Force in Sustainable Finance
“Economic revival after the coronavirus will require a sustainable recovery that takes the environment into account, and measures to encourage green finance will be crucial to achieve this,” said Governor Koike. Nakaso added that, “Covid-19 in many ways turned out to be a wake-up call for Japan. It alerted us to the imminent challenges that we have to resolve. We must be ahead of the curve in addressing climate change.”
Governor Koike fleshed out the details of Tokyo’s ambitions to be one of the world’s most active green finance city, saying that the city would “increase the amount of Tokyo Green Bonds issued and establish a sustainable energy fund that invests in facilities such as renewable energy-based power plants and hydrogen stations.”
Speaking from an asset manager’s perspective, Durack pointed to increased demand in mandates on sustainable strategies from Japanese clients in the last 12 to 24 months. There has been a “really great example in terms of leadership from our clients and institutions in Japan on the sustainability angle,” said Durack, whose firm manages more than half a trillion US dollars in assets around the world.
3. Expectations for Overseas Financial Companies to Expand into Tokyo
Koike expressed her hope that overseas financial companies would consider business opportunities in Tokyo and concluded the webinar saying that she would like everyone joining us today to know that TMG is fully committed to making Tokyo into global financial city.
