The Journal The Authority on Global Business in Japan

Tokyo has long been considered an Asian financial hub, but other cities in the region, such as Hong Kong and Singapore, have become more competitive in recent years.

In November 2016, Tokyo Governor Yuriko Koike formed an advisory council to strengthen Tokyo as a global financial center. Following the release of the council’s interim report, The American Chamber of Commerce in Japan (ACCJ) Financial Services Forum hosted a panel discussion with three members of Koike’s advisory council at the Shangri-La Hotel, Tokyo, on July 26.

In a lively discussion, KKR Japan Limited Chairman Atsushi Saito, Morgan Stanley Japan Holdings Co., Ltd. President and CEO Jonathan B. Kindred, and WisdomTree Japan CEO Jesper Koll imparted their personal opinions on the progress made so far.

THE COUNCIL
“I do think it is important to emphasize that Tokyo is already an important financial center,” Kindred said. “The question is, what things can really be done to further grow this location?”
It is essential to focus on the unique value proposition that Japan offers rather than comparisons with the likes of Hong Kong, he explained.

A seasoned advisory council member, both in Japan and abroad, Koll highlighted the refreshing enthusiasm that Koike has brought to every meeting so far.

“She’s very focused, right from the beginning. We want concrete measures that—at the micro level—the Tokyo government can build to actually achieve her goal of a smart city.”

There are no taboo subjects, and the diversity of the council—which includes people from fintech, asset management, and international companies—has resulted in more proactive discussions.

OPPORTUNITY
“The national government has actually created, in my opinion, exactly the right environment for finance in Japan to thrive,” said Koll, referencing the corporate governance and stewardship codes and improvements in environmental, social, and governance criteria—commonly referred to as ESG—which are allowing Japan the opportunity to proactively develop the next Asian standard.

“English is key for the international market,” Saito added. “This allows international companies to be more competitive with strategy and products than national Japanese companies.”

When asked what Tokyo can do to further enhance its competitiveness, Kindred explained, “I think that the single most important thing, at this point, is what I would call seriousness of purpose.” This means demonstrating change and addressing the barriers.

In addition to language, Kindred suggested Japan needs to continue improving labor mobility and personnel management restrictions.

“It’s absolutely absurd to have professional services companies managing and administering professional workers based on hours worked as opposed to performance output,” said Kindred, adding that the Council for the Realization of Work Style Reform could be doing more to change the way Japan works.

Saito explained that the Japanese Trade Union Confederation (Rengo) scrapped the white-collar exemption system—which would have meant pay based on performance rather than hours worked—simply because it would have done away with overtime pay.

“We are suffering, fundamentally, from a strong protection of labor. It sounds nice, but it’s too much.”

PARTS TO PLAY
What can the government do to enhance Tokyo’s position?
“The answer is simple,” Koll said. “It’s competition. [But] the bigger issue, in my opinion, is not the government; it’s actually the Japanese financial industry.”

Met by murmurs of agreement, he explained that there is no pride in finance in Japan, and that unifying the different interests of all parties—including entrepreneurs and fintech—is key.
Looking at the role of industry, Saito specified Japan’s IT sector as lagging—not because of the technology, but lack of skill in making a profitable product.

“We are definitely facing a very radical stage [where we need] to change the business models for these manufacturing-oriented industries,” he explained. This means tackling the education system and promoting soft knowledge.

And, as Koll concluded, international companies and organizations such as the ACCJ also play a role in promoting opportunities in Japan and abroad.

Maxine Cheyney
It is essential to focus on the unique value proposition that Japan offers rather than comparisons with the likes of Hong Kong.