newsletter

Tokyo: A Global Financial City

393

Despite easily being among the top ten biggest financial centres in the world, Tokyo is often forgotten about as one of the world’s major economic hubs. With Japan, perhaps unfairly, associated with deflation and economic stagnancy, most commentators look to cities like Shenzhen, Seoul and Singapore when exploring the growth and innovation taking place in East Asia. But this is something the Tokyo Metropolitan Government (TMG) is looking to fix.

As we discussed with the official in charge of Global Financial Strategy at TMG, the authorities in the Japanese capital have recently launched a new initiative called “Global Financial City: Tokyo, Vision 2.0.”  With all the “major changes in the environment surrounding international finance,” this initiative seeks to emphasise how Tokyo could, and should, be at the heart of those changes.

Vison 2.0

Why has TMG launched this programme now? TMG argued that, since the last Vision launched in 2017, there have been various significant changes in the global financial outlook. In TMG’s view, some of Tokyo’s competitors, such as London and Hong Kong, have been damaged by political decisions. There are also a number of emerging trends which he believes Tokyo is well-poised to take advantage of:

“This initiative – “Vision 2.0” – is a renewal of the “Global Finance City: Tokyo” Vision announced in 2017. The environment surrounding international finance has changed significantly in the past four years. For example, we are seeing growing global interest in sustainable finance against the backdrop of moves toward decarbonisation, greater international digitisation, and the global spread of the new coronavirus. [We have also seen] changes in the situation in Europe and Asia, such as the United Kingdom’s withdrawal from the European Union (Brexit) and the enactment of the State Security Maintenance Law in Hong Kong.

“The Tokyo Metropolitan Government regards these changes as an opportunity – to enhance Tokyo’s presence as a global financial centre and gain an upper hand in the increasingly fierce competition among global financial centres.”

Tokyo’s Qualities

It is certainly true that Tokyo has some long-standing qualities that make it an attractive destination for international finance. As TMG pointed out, “with Tokyo as its centre of financial business, Japan is an economic powerhouse. It has approximately 1,900 trillion yen in personal financial assets and the third largest GDP in the world. The country therefore has a wide variety of industries and products to invest in.” The Japanese market overall also has a number of enviable qualities for investors, while Tokyo itself is often considered a very comfortable place for expats to live and work:

“With the huge domestic demand and supply of funds as a driver – which underpin the diverse range of companies and projects in Japan – it is possible to build an investment chain that links both domestic and international demand for funds to global capital.

“At the same time, the rule of law and democracy, which are common to Europe and the United States, make stable financial transactions possible for investors and others around the world.

“As one financial professional told us: “Tokyo has a great infrastructure, it is safe to live in, it is clean, the service is great, and the food is exceptional. Also, compared to cities like Singapore and Hong Kong, the cost of living in Tokyo is quite low.””

Another major benefit of Tokyo is that it is in a prime geographical location to take advantage of rapidly growing markets in East Asia. China, Korea and developing economies across South East Asia are all potentially lucrative markets for companies with a foothold in Japan. The rate of growth in some of these countries, as well as the size of their markets in terms of population, are enormous. TMG cited this as a major strength – and outlined some work TMG is doing to strengthen ties with other economies even further:

“The Tokyo Metropolitan Government has established “Access to Tokyo” in Singapore, a liaison office with government agencies, industry organisations, and investors in various companies, to promote the attraction of local companies. In addition, last fiscal year we opened a “Business Development Centre Tokyo” in Hong Kong. This provides consultation services to local companies to help solve various problems and issues related to business and daily life in Tokyo. These are some of our efforts to focusing on the fast-growing Asian markets.

“Also, FinCity.Tokyo, a public-private financial promotion organisation, participated in the Asian Financial Forum held in Hong Kong and the World FinTech Festival 2020, co-hosted by the Monetary Authority of Singapore. This is promoting our activities and products in these regions.”

More widely, TMG also noted the sheer amount of capital that is available in Tokyo. As well as the cash that is available to foreign companies on the Tokyo Stock Exchange (TSE), TMG argued that a presence in Tokyo allows companies to benefit from the many investment opportunities in the region:

“Tokyo is home to the Tokyo Stock Exchange, one of the world’s largest stock exchanges in terms of market capitalisation. This can be a major attraction for foreign companies that have difficulty raising capital in their home countries.

“Further, Tokyo is geographically close to other fast-growing Asian countries, making it easy to approach and attract investors and projects from these regions. Based on these perspectives, the Tokyo Metropolitan Government, in cooperation with Japan Exchange Group (JPX, which operates multiple securities exchanges) and other organisations, will promote fund-raising (stock listings and JDRs) on the Tokyo Stock Exchange by foreign companies, including those from fast-growing Asian countries.”

Green Finance

Of course, one of the major trends in global finance surrounds green products. More and more banks, and other financial institutions, are looking to engrain ESG considerations into their practice. This is a space in which TMG believes Tokyo is strong. After all, the city launched its first green bond in 2017 and has continued to develop its market since. In 2020, Japan’s green bond market grew by a third and cumulative green bond issuances reached 26.15bn USD. The scale of the Japanese market is clearly expanding; there were nineteen newly established ESG-related funds in 2019 – in 2020, this reached 33. This market has the backing of the government; state-backed entities are issuing green bonds of an increasingly large volume. In 2020, Japan Housing Finance Agency issued bonds worth a total of 1.8bn USD.

Interestingly, TMG argued that one of the main attractions of Tokyo, in terms of green finance, is the warm welcome. Citizens, businesses and the authorities are receptive to, and interested in, ESG issues. In this sense, the reception is fruitful and the conditions are right for ESG products to be launched and traded in Tokyo:

“The citizens and business of Tokyo are highly interested in ESG. When green bonds were first issued by the Tokyo Metropolitan Government, they sold out on the same day, indicating a high level of interest, appreciation and attention to ESG-related products. In addition, there are 542 Japanese companies and organisations supporting the Task Force on Climate-Related Financial Disclosure (TCFD), the largest number in the world, indicating that Japanese companies are highly motivated to tackle climate change. Japan also has a large number of companies with advanced environmental technologies.”

It is these qualities which TMG is attempting to emphasise to the world. Interestingly, TMG told us that FinCity.Tokyo has signed a Memorandum of Understanding (MoU) with the City of London, “regarding exchange and cooperation in the financial sector” with a particular focus on green finance. There are “seminars on green finance in Tokyo and London every year, with the Governor of Tokyo and Lord Mayor appearing as speakers.”

Another promotional effort is the “Tokyo Finance Prize,” which TMG helped to launch. This will be awarded to “FinTech companies that developed and provide innovative financial products and services that contribute to solving the needs and problems of Tokyo citizens and businesses in the city, as well as businesses that promote ESG investment activities to contribute to the creation of a sustainable city.”

Clearly, the global financial strategy team at TMG are doing a lot of work to promote Tokyo’s qualities to worldwide investors. As seen in the creation of the “Start-up Ecosystem Tokyo Consortium” in 2020, for example, the authorities are attempting to grow and encourage the ecosystem in Tokyo. Working with “corporations, economic organisations, universities, research institutions, venture capitalists, and local governments,” they are trying to create a rich, wide-ranging business environment in Tokyo that leads to greater creativity, innovation and growth.

Tokyo has many attractive qualities that should make it an ideal base, particularly for institutions with an exposure to East Asia. It will be fascinating to watch how the city grapples with all of the changes in international finance in the years to come.

Author: Harry Clynch

#Tokyo #EastAsia #GlobalFinanceCity #Decarbonisation #Digitisation #GlobalCapital #RuleofLaw #Democracy #FinCity.Tokyo #FinTech #TokyoStockExchange #JapanExchangeGroup #GreenFinance #GreenBonds #ESG