Nine days in Japan to cover the Sibos banking conference leaves one with many questions on the future of Tokyo as a leading financial centre, even if the last day included four sessions dedicated to the host country.
When I was first introduced to the financial markets in the early 1990s, Japanese banks and securities houses were the biggest in the world. Tokyo stood on a par with London and New York, threatening to overtake them both. The dramatic collapse of the Japanese asset bubble in the late 1990s and the subsequent long-drawn-out depression suffered by the country has been reflected in the reduced size and ambitions of its finance sector. Even Nomura, having acquired the European and Asia assets of Lehman Brothers in 2008 to cement its place at the top table, reduced the scale of its non-domestic activities earlier this year.
So it was little surprise when Phred Dvorak, deputy Tokyo bureau chief for the Wall Street Journal, opened a session at Sibos’s Japan Day on ‘The current state of play in the Japanese financial landscape’ by pointing out Tokyo had slipped from fifth to seventh in the latest Global Financial Centres Index rankings.
That Asia’s low-tax international finance hubs, Hong Kong and Singapore, had overtaken Tokyo was not front-page news. But for South Korea’s Seoul (sixth) to outrank Japanese capital was perhaps a more telling sign of the declining wellbeing of finance in the world’s third-largest economy (Osaka, since you were wondering, is ranked 21st).
But perhaps a more profound indication of the run-down state of Japan’s finance industry was noted by a number of panellists. A high proportion of the country’s JPY 1,500 trillion in domestic household savings is “sleeping” in low-interest bearing accounts or other low-risk instruments, rather than being actively intermediated by Japan’s finance sector.
A long depression can knock the confidence out of both investors and intermediaries. Panellists draw from across Japan’s finance sector identified politics, the legal system, high taxes and a thinning talent pool as reasons for the failure of the country’s financial institutions to pull up trees at home or abroad.
Masayuki Hoshi, managing executive officer, Mizuho Corporate Bank, nevertheless cited several reasons for optimism, based largely on Japan’s proximity to Asia. Primarily, Hoshi saw a bright future for Japanese banks acting as a “bridge” between Japanese corporates looking to expand in Asia via cross-border M&A and Asian and multinational corporates active across the region.
But Hoshi also identified Asia’s need for long-term infrastructure finance, which he felt would play to the existing expertise of Japanese banks, “with the support of the Japanese export credit agency”. Japanese banking experience could also be of value in the establishment of the ASEAN+3 bond market, he suggested.
Moreover, Japan could perhaps support the financing needs of expanding Asian firms through issuance of equity or bonds in Tokyo, potentially waking up those sleeping mountains of household savings. The Tokyo Stock Exchange’s Pro-Bond market, launched in 2008, is hoping to issue its first RMB-denominated bond, according to senior executive officer Tomoyoshi Uranishi, another panellist.
As politely as she could, Dvorak suggested she’d heard it all before. And one can understand her scepticism. Japan’s ability to leverage its geographic links is open to question. Sibos itself was hit by the withdrawal of Chinese banks, which also opted not to attend IMF-World Bank meetings in Tokyo earlier in the year, in response to rising tensions over islands in the East China Sea. Panellists pointed to opportunities in Southeast Asia more than China, but the risks of a schism are wide-ranging. Also it is tough to provide a bridge between Japan’s corporates and their Asian commercial partners when the former are in retreat. In September, Panasonic reported the third-worst quarterly figures by a Japanese firm since 2004, Sharp admitted to fears over its long-term viability and even Sony is beating a tactical retreat.
None of this means Japan’s banks and brokers can’t rise to the top of the global rankings once more, but the road looks like being a very long one.