Julian Ryall’s article highlights the significant potential Japan possesses to become a global financial center. With Tokyo competing with other international financial hubs, particularly Singapore, reforming existing financial regulations could unlock significant opportunities in attracting global investment. Organizations like the American Chamber of Commerce in Japan (ACCJ) have offered crucial recommendations to improve Japan’s financial standing regionally and globally.

1. Financial Regulatory Reform: Barriers and Opportunities

Japan, despite its robust economy, faces relatively stringent financial regulations designed to protect investors. However, these regulations, while intending to protect investors, pose significant barriers for foreign financial firms seeking to enter the market.

The key to change lies in relaxing or removing regulations that are outdated or hinder the growth of the financial sector, especially for foreign funds. For example, the restriction that Japanese distributors can only sell foreign funds with special permission is a regulation the ACCJ believes needs reform. Amending these administrative regulations would enable Japan to create a more favorable environment for international investors, thereby attracting further foreign capital.

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 are incongruous with the actual operation of funds, where fund assets are not part of the distributor’s balance sheet. This creates an inconsistency where foreign funds must adhere to similar regulations as ordinary securities despite not being affected by the distributor’s financial condition.

The solution is administrative change, without requiring amendments to the Financial Instruments and Exchange Act of 2006. Simply altering the process by the Japanese Financial Services Agency (FSA) would relieve fund management companies from unnecessary regulatory burdens, reducing costs and making Japan a more attractive destination for international financial firms.

3. Creating an Attractive Environment for Foreign Financial Companies

A crucial factor in transforming Japan into a global financial center is reducing administrative barriers. Paperwork and language requirements sometimes create difficulties for foreign financial companies seeking to establish and operate businesses in Japan. Improving the legal environment and reducing administrative procedures will facilitate the entry of foreign financial companies into the Japanese market.

Tokyo, despite its advantageous location and developed infrastructure, needs to do more to attract international financial companies. Existing language regulations and administrative procedures are a disadvantage. The Japanese government needs specific policies to support international companies, while simultaneously creating a more flexible and modern legal environment.

4. Enhancing the Participation of Individual Investors

Another crucial factor in promoting the development of Japan’s financial center is the participation of individual investors. Despite Japan being the world’s third-largest economy, its domestic financial market has not sufficiently attracted the participation of individual investors, particularly in long-term investment areas.

Expanding opportunities for individual investors, particularly in financial products such as investment funds, securities, and long-term savings products, will generate a stable stream of capital for the market. This will not only contribute to financial market growth but also create employment opportunities and improve the quality of life for Japanese citizens.

5. Improving Financial Infrastructure and Technology

For Japan to become a global financial center, improving financial infrastructure and adopting modern technology is paramount. Japan needs to foster the development of financial trading platforms, optimize payment processes, and apply blockchain technology, artificial intelligence (AI), and other fintech innovations to enhance efficiency and security in financial transactions.

Japan already has a strong technological foundation, but it needs to accelerate the application of technology in the financial sector to effectively compete with other financial centers such as Singapore and Hong Kong. Developing these financial infrastructure functions will benefit not only domestic financial companies but also facilitate the entry of international companies into the Japanese market.

6. Improving Coordination Between Government and Businesses

To achieve its goal of becoming a global financial center, Japan needs a strong commitment from both the government and business organizations to improve 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 reassure international financial companies to invest in the Japanese market. The government must also commit to implementing reforms transparently and efficiently, creating a favorable environment for both domestic and international financial companies.

Conclusion: Japan Has an Opportunity to Transform

With significant opportunities and support from international financial organizations, Japan can become a powerful global financial center. However, to achieve this, the government must undertake crucial reforms in the financial sector, particularly in reducing regulations that hinder growth and attract international investment. If Japan can create a friendly, flexible, and innovative business environment, Tokyo will attract strong investment flows and become one of the world’s leading financial centers.