Political leaders do not normally concern themselves with the performance of asset managers. But for Japanese Prime Minister Fumio Kishida, it appears that the state of his country’s asset management business is a national issue that demands his personal attention.
This explains his extraordinary recent intervention when he called for fundamental reforms in the Japanese asset management sector in order to boost its performance and attract the country’s vast 2,000 trillion yen (US$15.4 trillion) household savings into national income and growth-boosting investments.
“It is important to fundamentally improve the asset management business,” Nikkei Asia quoted Kishida as saying at a government economic policy panel on April 27. “We will free up 2 quadrillion yen in household financial assets and build an asset management [industry] that contributes to sustainable growth.”
His comments reflect his wish to create a form of “new capitalism” in Japan – a plan he announced in 2021 – where a far greater proportion of the nation’s savings would flow out of cash and bank deposits and into stock market investment.
There are many elements of the plan, including boosting investment in human resources, developing startup ecosystems, raising wages, and promoting decarbonisation. These have undergone various changes, and now the emphasis is on boosting portfolio investment.
Kishida is keen to promote this because he has argued that greater flows of household savings into productive activities will help raise output and wages while further boosting incomes and consumption through dividend distributions and asset appreciation.
He is also conscious of the need to keep foreign investors in the Tokyo stock market happy by encouraging more domestic investment – and thus increased valuations. Foreign investors now own around one-third of all listed stocks in the Tokyo market and account for some 60% of daily trading.
Kishida has put the Nippon Individual Savings Account scheme at the centre of his “asset income doubling plan”. This scheme offers tax incentives to domestic investors. Starting in January 2024, the amount of eligible tax-favoured investments will be increased and the scheme made permanent instead of being time bound.
“Of Japan’s 2 quadrillion yen of household savings, some 75 trillion yen will be freed up over the next ten years by demographics, but a huge proportion of that will be eaten up by inheritance and gift taxes,” veteran Japan analyst Jesper Koll tells Asia Asset Management (AAM). He says giving preferential tax treatment to portfolio investment would be a positive step.
According to Keiichi Aritomo, executive director of the semi-official financial promotion agency FinCity, Tokyo, “activating the trillions of yen in household assets that are still sleeping represents a huge opportunity for investors, in Japan and overseas”.
“More broadly, Japan needs capitalists who can identify hidden gems, spot long-term growth opportunities, and help entrepreneurs realise them. Reforming and globalising Japan’s asset management space will help us achieve that,” Aritomo tells AAM.
Analysts blame widespread lack of professionalism among Japanese asset managers as a reason why stock market investment does not receive the attention it deserves and needs, especially from domestic investors.
According to Nikkei Asia, the Financial Services Agency in a recent report “cited an instance of an asset manager that installed a CEO with no relevant experience to go with group wide personnel decisions”.
“The Japanese asset management industry is nowhere in the international asset management league except for the GPIF [Government Pension Investment Fund]” says Koll. But at least Kishida is making the world realise that he is aware of the problems and that “business as usual” will no longer work.
