16 September 2009
Japan has long been eclipsed by the dynamism of western countries and the strong growth of neighbouring China, but still has the second largest economy in the world in terms of GDP. To achieve its aspirations of competing on a global level, Wednesday morning’s panel urged the end of insular policies by governments and regulators that have so far left overseas institutions out in the cold.
Despite its immense economy, Tokyo only ranks as the 15th largest financial centre behind cities such as Dublin and Jersey, according to a survey published in March by the City of London.
Minoru Shinohara, CEO, Nomura Asia Holdings, President and CEO, Nomura International (Hong Kong) |
“There is a clear will from Japan to emerge as an international financial centre, but how real is that will?” questioned Minoru Shinohara, CEO, Nomura Asia Holdings, President and CEO, Nomura International (Hong Kong). “Compared to New York and London, there is a real lack of diversity in Japan that needs to be addressed.”
While the Japanese Financial Services Agency has installed recent reforms including the creation of a market for professional investors, expanding the scope of exchange-traded funds and lowering the firewalls between banks and securities firms, there are other issues including a lack of English speakers in the country – a crucial element to developing an international financial centre – that need to be addressed.
“The high cost and cumbersome nature of funds transfer and balance reporting is too high and unsuitable for an economy of Japan’s size,” added Kaoru Ito, Managing Director, Operations Services Asia, Corporate Treasury at GE.
Deregulation or re-regulation?
Michael Reuben, Managing Director, Head of Global Transaction Services, Citi, said that some regulation, including separate bond markets for overseas and domestic investors and anti-money laundering laws burden institutions and result in high compliance requirements and costs. This, he argued, would discourage international investors, who may feel as if they are becoming localised.
“Deregulation is starting to feel like re-regulation and it is clear a change is needed,” said Reuben. “Japan has a conflicting personality that wants to be global and reach out to the world, but the moment the world tries to reach into Japan, it seems to close it barriers.”
“We have shed our oriental self and are becoming global. We hope that bringing this model into Japan will help stimulate its economy.”
Minoru Shinohara, CEO, Nomura Asia Holdings, President and CEO, Nomura International (Hong Kong) |
While agreeing that it may seem as though Japan has implemented its “own standards for its own sake,” Hideo Kazusa, General Manager, Transaction Services Division, Bank of Tokyo-Mitsubishi UFJ and SWIFT board member, was quick to point out that Japan does have aspirations to be global and is making changes step-by-step, including the implementation of ISO 20022 standards for money transfers, as well as at the Jasdaq central securities depository.
“It will take time,” said Kazusa. “We are not moving at the rate of a sports car, we are really moving at the rate of a tanker.” Both Shinohara and Kazusa considered that the move to embrace the rest of the world might have to be driven by financial institutions, perhaps unsurprising as Nomura bought the Asian and European assets of failed investment bank Lehman Brothers and Mitsubishi bought a stake in Morgan Stanley, following the fallout from the financial crisis last September.
Shedding its oriental self
“Nomura has had ambitions to build a global platform for many years, but the time it took to do this was too long, which is why the acquisition of Lehman Brothers came at just the right time,” said Shinohara. “Now we have shed our oriental self and are becoming global. We hope that bringing this model into Japan will help stimulate its economy.”
Session moderator Michiyo Nakamoto, Deputy Bureau Chief, Tokyo, Financial Times, also highlighted that Japan has the advantage of being part of the Asian success story. “It’s hard to believe that Japan is going to sink, but it will have to continue working and integrating itself with the rest of the region to take full advantage of that,” she said.
Now that the financial crisis has led markets across the globe to rethink their models, Japan has the chance to grab the opportunity and diversify into areas that will encourage foreign investment and further develop its capital markets.
“Japan has been slow moving, but there are some good trends taking place and companies need a good reason not to invest there,” said Reuben.
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