Japan as an Investment-Oriented Asset Management Center
~ Wednesday, October 9, 2024 Blog Post ~
As a keen global investor interested in discovering new investment opportunities, I watched the webinar titled, “Frontiers of International Finance: Japanese Market in a New Phase” yesterday, Tuesday, October 8, 2024. The daylong event organized by Japanese media firm Nikkei involved distinguished professionals from the industries of banking, finance, investment management, journalism, and business.
I appreciate taking my time out of my busy schedule to learn about what a financial nation Japan should be according to the insights presented by the speakers from KPMG, JPMorgan Asset Management, and Mizuho Financial Group Incorporated, among many others.
Last year’s edition of this Japanese webinar introduced and highlighted Japan’s ambition to become the world’s financial asset management hub. To this date, former Prime Minister Fumio Kishida and the new Japanese head of government, Mr. Shigeru Ishiba, have reinforced that target, and the country is, apparently, making inroads.
In this blog post, I want to highlight the salient points I appreciate in the webinar, which are the following:
1. Nippon Individual Savings Account (NISA)
It’s fascinating to discover how the Japanese government strongly encourages people to save and invest their hard-earned funds. I gathered from the webinar speakers that there is the NISA which the government created to spur investment and savings. The savings account lets investors waive dividends and capital gains for a limited time.
One of the Japanese webinar speakers affirmed that millions of NISA accounts have been opened lately, which indicates that the savings scheme is widely accepted by the Japanese people. Indeed, I deduce that the NISA drives asset-building in life’s various stages, starting from the young and salaried employees, homemakers or housewives, and so forth.
One of the webinar speakers cited that the new NISA started this year, with ¥9.5 trillion invested through the account from January to August. Domestic investors pour their funds into domestic stocks which have high dividends, indicating the retail investors’ robust backing of the Japanese market.
Based on my research and information from Tokyo-based Argentum Wealth Management, the NISA is a tax-exempt government investment account. Individuals who are more than 18 years old can open one, then, save and invest their money tax-free in mostly Japanese mutual funds and stocks for five years.
The NISA was first launched in 2014 and was patterned after the Individual Savings Account or ISA system in the United Kingdom. This scheme is the offshoot of the Japanese government’s worry about the inadequacies many people had in retirement savings.
Additionally, I learned that the NISA was born out of the government’s concern for the average Japanese household having a dearth of investment in the stock market. The savings account was for bridging the gap between the people’s small investment accounts and huge and unproductive accounts.
The NISA is one of the programs intended to make sure Japanese households can build assets. With this long-term systematic investment plan, account holders pour their money into investment trusts and stocks. They allow their funds to grow by raising the maximum investment amount. Through the government’s pursuit of asset management sector reforms, the people’s income is encouraged to grow. In this manner, their invested funds can propel the expansion of Japan’s economy.
2. Boosting the public’s financial literacy while helping them build their financial assets
Another matter I found interesting in the Nikkei webinar yesterday is how the Japanese government strongly drives people to be educated about personal financial management. Financial and economic education is heavily promoted in Japan, per the event’s speakers. Stakeholders like banks, the government, and asset management firms motivate people to save their hard-earned money and urge them to shift from saving to investing.
This measure is taken because, according to one of the webinar’s resource persons, many Japanese people, who he described are generally very decent and hardworking, don’t necessarily care about their hard-earned money and taking advantage of certain favorable investment opportunities. He pointed out that this reality demands taking action, which is the reason why they are trying to promote financial literacy.
The Nikkei webinar speaker confirmed that the investment climate in Japan has many issues, with the super-affluent tending to be big shareholders in merely the firms they established. These Ultra-High-Net-Worth Individuals (UHNWIs) do not necessarily invest in new opportunities as they are typically quite fixated on real estate assets. Diversification has obviously remained a problem in Japan.
3. Advocacy for high-quality financial products and services
One of the speakers from the webinar affirmed that, in the past 30 years, many financial products were introduced through inducing hype and excitement among consumers.
This time, I learned that Japan is working towards offering high-quality financial services and products. Japanese companies are directed to improve their overall offerings by making them aligned with consumers’ life conditions and assets — their best interest. To realize the country’s goal of becoming the world’s finance and asset management hub, financial service providers are making fees transparent.
Moreover, I gathered from one of the Nikkei webinar’s speakers that, similar to traditional manufacturers, finance and asset management companies are mandated to make their services and products’ philosophy clear and with a well-established quality management system. In this manner, firms can ensure their offerings’ effectiveness and customers’ motivation to avail them.
4. Tokyo metamorphosing into a financial nucleus
Tokyo is the headquarters of Japan’s three mega-banks — Mitsubishi UFJ Financial Group Incorporated, Sumitomo Mitsui Financial Group Incorporated, and Mizuho Financial Group Incorporated. Major life insurance companies and the Bank of Japan, which supports the investment trust association, are also based in the Japanese capital.
Through the webinar, I learned that Tokyo has been an international financial center since Hong Kong was de-liberalized. With the asset management business as a key growth area, this major city has witnessed the creation of special zones for financial asset management in recent times, complementing other Japanese regions like Fukuoka, Osaka, and Sapporo in Hokkaido.
Interestingly, I will be visiting Tokyo next week from October 14 to 18, 2024. Visiting the Tokyo Stock Exchange (TSE) is a component of my travel itinerary. I’m elated to discover that visitors can tour the TSE’s market division, which oversees a trading area that is open to the public.
5. Japan continues to be a top investment option for global investors.
In the webinar, I discovered that the Japanese financial market has certainly entered a new phase. The Nikkei 225, which is the TSE’s important stock market index, recently reached its highest level in 34 years. This record-high moment also involves the Tokyo Stock Price Index or TOPIX hitting a new high in July, though there was no media frenzy. Based on the speakers’ insights, interest in the Japanese market will continue to grow.
Furthermore, I gathered that investors from Australia, London, and New York have expressed confidence in Japanese companies, markets, and governance reforms. Canada’s pension fund, the Canada Pension Plan Investment Board or CPP Investments, is an active, progressive, and sophisticated corporation interested in Japan-based investment opportunities. I learned from one of the webinar speakers that retail investors from within Japan can take advantage of the country’s investment opportunities via their NISA accounts.
Many domestic and international investors in the world’s third-largest economy are not concerned about market fluctuations. The growing interest in investment opportunities in Japan comes with foreign investors having faith in Japanese companies’ solid performance and unchanged long-term growth prospects.
Indeed, Japanese corporations have strongly performed. There have also been record-high capital expenditures, investments in automation, digitalization, and decarbonization, and a shift from a deflationary mindset. The favorable market sentiment has enticed investors within and outside Japan and has been sustained by the East Asian country’s free markets, ample capital, and political stability.
6. Japan transitioning into an investment-oriented country
Many of the webinar’s resource persons highlighted the event’s theme, which is Japan’s promotion of the investment chain’s virtuous cycle. Since 2023, the Japanese government and stakeholders have pushed the trend of people shifting from saving their funds towards investing them.
To bolster this program, the government is attempting to modify households’ mindsets through the NISA investment’s expansion. It is also reforming the asset management business, encouraging high-quality financial services, and enhancing enterprises’ value to help investors maximize their returns.
7. Tokyo is among the international cities with the greatest number of millionaires and billionaires, yet more must be done to keep this scenario.
One of the distinguished webinar presenters pointed out that Tokyo has had numerous millionaires and billionaires minted in recent years. However, more of these UHNWIs are necessary to grow Japan’s economy.
I learned from the webinar panelist that the Japanese government and stakeholders can tap those wealthy people by motivating them to invest in certain opportunities, including equity. This scheme will enable Japan to emulate the United States, whose household financial assets tripled in the past 30 years.
In Japan, there was a large size of household financial assets 25 years ago and this figure has grown 1.5 times, per one of the webinar’s speakers. Nevertheless, he relayed that the household financial assets’ growth in Japan is merely half of that in the United States. The reasons behind this reality are the problems in asset allocation and the home market’s underperformance.
Resolving these challenges and reducing taxes shall help in the minting of more millionaires and billionaires in Tokyo, based on the webinar resource person. He also remarked that creating a Japanese-style private bank catering to the mass affluent, High-Net-Worth Individuals, UHNWIs, and serving on a portfolio and advisory basis shall lead to a virtuous cycle in terms of investment.
8. There is much more prosperity in Japan’s future.
Tokyo Governor Yuriko Koike graced yesterday’s webinar again. As the Japanese capital’s top sales representative, she described her city of densely packed buildings as a convenient and comfortable location, although the urban locale is expensive, with the cost of rent being 1/3 of London’s and ¼ of Singapore’s.
Governor Koike affirmed that they are end-to-end digitalized, diverse, constructive, support broad representation from all sectors, and are open to new ideas. She said they have taken unique measures and sustainability initiatives that are supported by the power of finance.
Ms. Koike cited their investments in the city bring about innovation and solutions to the problems they face. She also mentioned that they are proactively investing to reduce the financial burden around education and childcare.
Tokyo’s chief executive pointed out that they need access to talents and skillsets, specifically in financial research. She remarked that, through exceptional talent from around the world, innovative ideas, expertise, and advanced technology, Japan’s seismic shift towards an asset management nation, as reinforced by the Japan stock exchange, can be realized.
I agree with Ms. Koike that, through all the initiatives in her city, Japan can become a leading asset management nation and the go-to country for international asset managers. Although flexible and simple in approach to its objective, Tokyo is surely ambitious to be forward-looking.
Its companies understand what they can achieve with their partner firms. For instance, large listed asset management players like the Sumitomo Mitsui Trust Group boast a long-term vision and resilience to push through.
Nikkei’s webinar analyzed the present status of Japan’s financial markets, which have entered a new era. I earned considerable insights regarding the initiatives and essential matters for the country’s further economic improvement. The Japanese market is, indeed, attractive to global and local investors.
Conclusion: The Ever-Ambitious Japan Becoming a Financial Asset Management Center
In February 2024, BlackRock, the world’s largest asset manager, bullishly forecasted a robust surge in Japanese stocks. Then, last July, the Nikkei Stock Average surpassed ¥42,000 for the first-ever instance. These positive developments indicate that the Japanese stock market has reached a new stage.
Nonetheless, the present booming stock market is propelled by international firms expanding by tapping into international demand, like the semiconductor sector, which sometimes makes the market quite wobbly.
Very rapid changes and a new way of looking at the Japanese market have superseded traditional thinking in Japan. Foreign investors currently have a very positive view of the country. Since the suppliers of capital are the investors from the local and foreign scenes, the East Asian country is looking forward to attracting and establishing more startups and nurturing these global top players, as well as enticing large companies, cities from around the world, and other investors.
Speakers from the Nikkei webinar confirmed that Japan ensures its competitive global standards while its people keep their immense work ethic. One of the webinar’s speakers affirmed the continuity of former Prime Minister Kishida’s policy of promoting Japan as the leading financial center for asset management business. This initiative will involve heightened asset ownership and improved asset management services to upgrade the Japanese economic system.
Japan’s continuing financial growth strategy of strengthening the country’s asset management sector also entails drastically expanding the NISA and corporate governance reform’s advancement to decisively accelerate the shift from savings to investment.
The push for a comprehensive reform of the asset management sector and asset ownership, including public and corporate pension funds, is believed to strengthen the whole investment chain in Japan. One of the speakers in the Nikkei webinar believes there is room for improvement as Japan promotes itself as a leading asset management center. Bold risks have to be taken to achieve sustainable growth.
Furthermore, I learned from one of the speakers that it is key for listed companies to engage in dialogue with investors. By making it effortless for overseas investors to reach out to Japanese companies, the country’s market for domestic, overseas, and institutional investors will further enhance its attractiveness.
I learned from one of the webinar’s resource persons that Japan should truly grow and be growing despite the country’s microeconomic issues. These economic problems comprise the shortfall in labor supply, depopulation, and declining childbirth.
Yet, I concur that institutional and retail investors from the country and abroad can address these economic challenges by continued backing of corporate activities. Inviting foreign investors in the Japanese market is an important element of elevating the asset management initiative and maintaining the East Asian country’s economic and financial progress.
References:
https://argentumwealth.com/the-great-wealth-transfer-and-its-effects-on-expats-in-japan/
https://argentumwealth.com/unlocking-nisa-the-essential-guide-for-expats-in-japan/
https://www.bloomberg.com/profile/company/BARC:JP
https://www.cppinvestments.com/the-fund/
