Julian Ryall’s article highlights the significant potential that Japan can leverage in becoming a global financial hub. With Tokyo competing with other international financial centers, especially Singapore, changing current financial regulations could offer substantial opportunities in attracting global investment. Organizations like the American Chamber of Commerce in Japan (ACCJ) have provided important recommendations to help Japan improve its financial position in the region and globally.
1. Financial Regulatory Reform: Barriers and Opportunities
Japan, despite having a strong developed economy, faces several rather strict financial regulations, which are intended to protect investors. However, these regulations, while meant to protect investors, have become major barriers for foreign financial companies wanting to enter the market.
The key to change lies in easing or eliminating regulations that are no longer relevant or hinder the development of the financial industry, especially for foreign funds. For example, the requirement that distributors in Japan can only sell foreign funds if they have special licenses is a regulation that the ACCJ believes needs to be changed. If administrative regulations are amended, Japan will be able to create a more favorable environment for international investors, thereby attracting more capital from abroad.
2. Sales Licenses and Capital Regulations
Japan requires distributors to have a Type 1 license to sell financial products, including foreign funds. However, these regulations do not align with the operational realities of funds, where the fund’s assets are not part of the distributor’s balance sheet. This creates an inconsistency when foreign funds have to comply with regulations similar to ordinary securities even though they are not affected by the distributor’s financial condition.
The solution is administrative change, without needing to amend the Financial Instruments and Exchange Act of 2006. If the Financial Services Agency (FSA) simply changes the process, fund management companies will no longer have to bear unnecessary regulatory burdens, thereby reducing costs and making Japan a more attractive destination for international financial companies.
3. Creating an Attractive Environment for Foreign Financial Companies
One of the crucial factors in transforming Japan into a global financial center is reducing administrative barriers. Requirements for paperwork and language sometimes make it difficult for foreign financial companies to establish and operate businesses in Japan. Improving the legal environment and reducing administrative procedures will make it easier for foreign financial companies to enter the Japanese market.
Tokyo, despite its prime location and developed infrastructure, still needs to do more to attract international financial companies. Current language regulations and administrative procedures have become a disadvantage. The Japanese government needs to have specific policies to support international companies, while creating a more flexible and modern legal environment.
4. Improving the Participation of Individual Investors
Another factor that is also very important in promoting the development of the Japanese financial center is the participation of individual investors. Although Japan is the third-largest economy in the world, the national financial market has not yet attracted enough participation from individual investors, especially in long-term investment areas.
Expanding opportunities for individual investors, especially in financial products such as investment funds, securities, and long-term savings products, will create a stable flow of capital for the market. This will not only help the financial market grow but also create job opportunities and improve the quality of life for the people of Japan.
5. Reforming Financial Infrastructure and Technology
For Japan to become a global financial center, improving financial infrastructure and applying modern technology is crucial. Japan needs to promote the development of financial trading platforms, optimize payment processes, and apply blockchain technology, artificial intelligence (AI), and other financial technologies to improve efficiency and security in financial transactions.
Japan already has a strong technology foundation, but it needs to accelerate the application of technology in the financial industry to compete effectively with other financial centers such as Singapore and Hong Kong. Developing these financial infrastructure functions will not only help domestic financial companies but also create favorable conditions for international companies to participate in the Japanese market.
6. Improving Coordination Between Government and Business
To achieve the goal of developing into a global financial center, Japan needs a strong commitment from the government and business organizations to improving the business environment. The Japanese government needs to create long-term policies and coordinate closely with financial companies to address structural shortcomings in the current financial system.
Strengthening this coordination will help build a stronger financial ecosystem, promote innovation, and give international financial companies peace of mind to invest in the Japanese market. The government also needs to commit to implementing reforms towards transparency and efficiency, while creating a favorable environment for financial companies both domestically and internationally.
Conclusion: Japan Has an Opportunity to Change
With significant opportunities and the support of international financial organizations, Japan can become a powerful global financial center. However, to do this, the government needs to implement important reforms in the financial sector, especially in reducing regulations that hinder development and attract international investment. If Japan can create a friendly, flexible, and innovative business environment, Tokyo will attract a strong flow of investment and become one of the world’s leading financial centers.
