Investor Nation
The ACCJ Financial Services Forum advocates for stronger market policies in its latest white paper
The American Chamber of Commerce (ACCJ) is fully on board with the Japanese government’s stated ambition of transforming the nation into a global leader in asset and wealth management, with the chamber’s Financial Services Forum (FSF) broadly supportive of a series of policy initiatives announced by Tokyo since April 2023. But they point out that more can be achieved to better meet consumers’ needs and that vigilance is required to ensure the promised changes do not stall.
The FSF comprises the leadership of the chamber’s five financial services committees and is designed to ensure that the ACCJ’s position on financial services issues is approved by the board and addressed in a consistent manner.
After a close examination of the government’s proposals, the FSF issued a white paper in July entitled Transforming Japan into a Global Asset and Wealth Management Leader. Stating that “the commitment that the national government is making to the transformation of the investment industry is critical for success, as most of the essential resourcing and policies can be achieved only with central government leadership, action, and education,” the paper details a three-pronged strategy:
- Accelerating corporate governance reform.
- Reforming the asset management sector and asset ownership.
- Doubling asset-based income among individual investors.
The FSF white paper outlines its recommendations within the context of the Government of Japan’s Policy Plan for Promoting Japan as a Leading Asset Management Center, released in December 2023. This framework serves as the foundation for the government’s efforts to transform Japan into a global asset management leader and financial hub.
Corporate Governance Reform
The first issue highlighted by the FSF is to accelerate progress on corporate governance reforms in parallel with reforms to the asset management industry. The goal is to make Japan a global standard bearer by sharply increasing participation among individual investors and expanding access to asset-based income.
There is clear common ground with many of the plans of the Japanese government, some of which is outlined in a June 2024 statement entitled “Principles into Practice,” issued by the Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code. This council operates under the joint secretariat of the Financial Services Agency (FSA) and the Tokyo Stock Exchange (TSE).
The Japanese proposals emphasize greater corporate governance enforcement, training for independent directors, and stewardship activities, while the TSE has revised its listing rules to mandate English disclosures of financial statements and timely information effective April 1, 2025.
The FSF white paper makes clear, however, that many issues—including ensuring substantive reforms take root and enforcing deadlines for strategic shareholdings—remain incomplete or are still works in progress. Similarly, disclosure practices have improved, it points out, but there are concerns that some companies are still “going through the motions” instead of devoting the required effort to the procedures. Equally, there has been progress on efforts to unwind cross-shareholdings, although the paper emphasizes that greater reviews are still necessary.
“Stating that ‘the commitment that the national government is making to the transformation of the investment industry is critical for success, as most of the essential resourcing and policies can be achieved only with central government leadership, action, and education,’ the paper details a three-pronged strategy.”
“Board independence and diversity, progress on English-language disclosure, and electronic voting rights are cited as key improvements,” the white paper states. Transforming corporate governance “from a box-ticking exercise to a core business element” has received the strong support of Hiromi Yamaji, president of the Japan Exchange Group. This is seen as very important, but the white paper points out that “greater and quicker progress is needed to avoid complacency setting in among management, which could cause reform to stagnate.”
To ensure that does not happen, the FSF is calling on the FSA and the TSE to collaborate on a plan for stronger enforcement of the Corporate Governance Code and that the present recommendation that independent directors account for a minimum of one-third of Prime Market boards be increased to an outright majority. They would also like to see a new initiative to increase both the number and quality of training programs, with a focus on diverse director candidates.
Other proposals include making the recently extended tax incentives for spin-off companies permanent to enhance predictability when it comes to tax planning, promote the creation of innovative spin-offs, and optimize business portfolio strategy and planning. Yet another proposal in the white paper is for the TSE to work with listed companies to spread annual general meetings across the calendar and to permit virtual attendance by offshore investors.
Asset Management
Turning to asset management, 2023 legislation imposes a legal obligation on all parties in the investment chain to act in the best interest of customers. As the government implements its plan to translate this obligation into rules and regulations and/or codes of conduct for each set of players and actively enforce them, the FSF recommends that the FSA continue to take steps to strengthen measures that ensure the independence of asset management firms and improve the capabilities of management. It is also recommended that the FSA aggressively shift to a domestic retail brokerage revenue model from one dominated by transaction fees so that advisory fees become more important.
Other proposals include the introduction of a “comply-or-explain” approach to new standards, as well as formalizing a continuous process of monitoring implementation, with the outcomes published regularly and transparently.
Organizations beyond the ACCJ have also welcomed efforts by Japan to implement reforms in the asset management sector. The Washington DC-based Investment Company Institute (ICI) said in a July 1 statement:
“The Japanese government’s policy plan for the coming year consists of extremely important reforms, such as changes to Japan’s individual defined contribution retirement program, including increasing contribution limits and providing more opportunities for older workers to save,” said ICI President and Chief Executive Officer Eric J. Pan. “These reforms can help households adapt to changing macroeconomic conditions by making greater use of the diversified investments offered by asset managers to build household wealth, prepare for retirement and meet other important financial objectives.”
NISA and Asset-based Income
Pan also applauded the expansion of the Nippon Individual Savings Account (NISA) program through the simplification of operational procedures and promoting more people to take advantage of the scheme.
The changes to NISA were outlined by then-Prime Minister Fumio Kishida in a speech to the Economic Club of New York in September 2022 as a way of attracting more overseas companies into Japan and improving the offerings of the asset management industry. In a similar speech in September 2023, Kishida announced plans to establish special business zones for asset management firms where administrative procedures can be completed entirely in English. The administation of Prime Minister Shigeru Ishiba has committed to continuing this important initiative.
This initiative ties in neatly with the third focus of the FSF’s white paper, individual investors and asset-based income, with the report pointing out that in comparison with the US and European markets, “Japan’s individual investment and retirement market has enormous growth potential and opportunities to better serve the needs of investors, which is particularly important in view of Japan’s demographic and fiscal challenges.”
The FSF recommends further expansion of NISA limits as well as the range of investments that would qualify. The fact that flows into NISA accounts have increased dramatically in response to the previous increase of annual investment limits to ¥3.6 million underlines just how popular this form of investment is becoming.
Stronger Market
Placing priority on developing and resourcing programs that nurture an ecosystem of independent financial advisers—and where individual investors can receive advice free of influence from the companies that are offering products—is another evolution called for in the white paper. This would strengthen the quality of financial advisers and enhance client–adviser relationships.
The FSF’s proposals may be ambitious and far-reaching, but the forum is confident that, if adopted, they can deliver benefits to both consumers and providers in the Japanese market, as well as transforming Japan into a global asset and wealth management leader.
