Tokyo recently hosted back-to-back events designed to showcase the city’s headway toward becoming a leading asset management centre in and beyond Asia, and Japan’s progress to become an asset management nation.
The Tokyo Asset Management Forum and the FinCity Global Forum succeeded on both counts, based on the number of asset managers and other financial specialists who attended the events.
They also provided wider perspectives on where asset management trends are likely headed. And they raise the question as to whether the traditional rivalry among international financial centres such Hong Kong and Singapore is becoming outdated at a time of changing global dynamics as countries develop their own financial capabilities and rely more on domestic rather than offshore financing.
The forums also raise the issue of whether the rapid advance of artificial intelligence into finance means that countries that do not have dedicated financial centres will not need to rely so heavily on imported funds and expertise in the future.
Under this scenario, the strategy of developing a financial centre can no longer be seen in the narrow sense as a means of attracting international funds, but as part of a broader objective of nurturing domestic capital market development and encouraging a shift from saving to investment. In this case, financial sector development becomes part of overall economic policy planning.
During the forums on February 5 and 6,, representatives from Tokyo and Frankfurt signed an agreement to accelerate mutual capital market development. The ramifications of this may extend well beyond the realm of finance.
Japan and Germany are both primarily industrial nations that have placed greater importance on developing manufacturing rather than financial skills.
Broadening priorities
Several speakers at the forums argued that in order to become more self-sufficient in finance, both public and private sector priorities need to be broadened. Intermediating and deriving income from international fund flows is increasingly seen as a skin deep approach to development, whereas the need is for finance to become part of a nation’s economic anatomy.
This involves not only collecting domestic savings more widely via local capital markets but also deploying them more effectively into areas where they are most needed from a national perspective, such as energy, infrastructure, climate change and technology promotion, rather than in line with the priorities of global investors.
In many Asian economies, banks play a larger role in collecting domestic savings, both at the individual and institutional level, while capital market development has been relatively neglected. This is now seen as a source of potential vulnerability in a changing global environment, and both Tokyo and Berlin are adjusting their priorities accordingly.
According to Hiroshi Nakaso, chairman of FinCity.Tokyo the quasi-government organisation charged with assisting in this task, “global volatility has given the Tokyo-Frankfurt collaboration new strategic weight. Germany and Japan share not only economic interests, but also security interests in maintaining resilient supply chains, financial stability, technological sovereignty, and a rule-based international order”.
“System-level investment”
Nakaso, a former deputy governor of the Bank of Japan, drew attention to a need for “ system-level investment” which “shifts the focus away from short-term excess returns at the individual company level and toward improving the stability and resilience of the market system as a whole”.
“Structural risks such as climate change and widening inequality cannot be fully addressed through portfolio-level risk management alone,” he said.
Long-term investors, he suggested, may need to engage more actively with the system itself through market design, policy dialogue, and the strengthening of social and economic infrastructure.
Similarly, Oliver Behrens, president of Frankfurt Main Finance, argued that the most promising area of collaboration between financial centres such as Tokyo and Frankfurt is a “platform-type partnership” in long-term asset management where “financial centres can actively shape outcomes, not just observe markets”.
This is an intriguing idea that could resonate with policymakers in Asia and beyond who are cautious about accelerating capital market development for fear it might result in widening wealth disparities within their societies, and an outflow of corporate profits to international investors whose priorities differ from domestic ones.
Another intriguing idea to come out of the Tokyo gatherings was that the rapid advance and adoption of AI technology could render Asian economies less dependent on importing foreign technology and personnel in developing financial sector skills.
Such is the brave new world of finance.
An island of stability in a sea of uncertainty
Japanese Prime Minister Sanae Takkaichi’s landslide victory in the lower house parliamentary election on February 8 may have raised uncertainties in bond markets about her expansionary fiscal policies, but her big win promises to be good for Japan’s overall financial system development.
Takaichi, the first woman prime minister in Japanese history, is convinced that such development is needed to support economic growth, which is high on her policy agenda, according to Yutaka Ito, commissioner at the Financial Services Agency.
Ito, who spoke at the two-day Tokyo Asset Management Forum and the FinCity Global Forum held in the Japanese capital, hinted also at the prospect of increased support for public/private investment projects under the Takaichi administration.
A series of prime ministers, including Fumio Kishida and the late Shinzo Abe, have backed official initiatives designed to make Tokyo a leading fund management centre and Japan an asset management nation.
But the high turnover of political leaders in Japan in recent years has created uncertainty over the continuity of such policies.
Takaichi and her Liberal Democratic Party (LDP) now have an absolute controlling majority in parliament following the election, a situation that seems likely to be maintained for at least two years. Japanese stock prices have rejoiced at this prospect of stability.
As Hiroshi Nakaso, chairman of FinCity. Tokyo said during the Tokyo events, “in today’s world, stability itself has become a scarce and valuable asset”.
According to Nakaso, Tokyo’s financial centre “supported by a stable democracy and the rule of law, is well positioned to turn this environment into investor confidence”.
The government plans to launch in April a new Asset Managers Association combining and coordinating the work of several existing agencies and offering revised incentives to fund managers.
These will likely include plans for public/private sector investment in areas ranging from defence projects to reinforcing global supply chains.
