Financial services to Japan
Trends and opportunities
Japan has the second largest pool of investable wealth in the world. Assets held by Japanese households are valued at JPY 1,706 trillion as of December 2015 of which:
- 52.4 per cent were bank deposits
- 9.0 per cent equities
- 5.4 per cent unit trusts
- 1.6 per cent fixed income.
(Source: Bank of Japan, Guide to Japan’s Flow of Funds Accounts, December 2015)
Financial conditions amongst firms and households have liberalised under quantitative and qualitative monetary easing (QQE) and the related economic revitalisation strategies of the current Abe Government, known as 'Abenomics'. The Bank of Japan (BOJ) also introduced a negative interest rate for the first time in January 2016.
It is assumed by many market observers that negative interest rates will hurt the profitability of financial institutions, especially banks. Regional banks are smaller with less solid financial foundations than the ‘mega banks’ such as MUFG, Mizuho and SMFG, and are scrambling to improve their revenue streams by increasing investment in high-yield products and setting-up asset management subsidiaries, often jointly with other regional banks. This is also creating more mergers and acquisitions activity in the market.
Asia Region Funds Passport
Australia, Japan, South Korea and New Zealand are the initial signatories to the Memorandum of Co-operation (MoC) that established the Asia Region Funds Passport (ARFP). The ARFP is widely seen as a key component for building financial integration across the Asia-Pacific region and facilitating the flow of capital into the region's equity and debt markets.
The MoC on the establishment and implementation of the ARFP came into effect as of 30 June 2016. Representatives from Australia, Japan, Korea, New Zealand and Thailand have signed the MoC. These five economies have up to 18 months from signing to work to implement domestic arrangements under the MoC. Activation of the AFFP will occur after any two participating economies complete implementation. The ARFP is an international initiative that facilitates the cross border offering of eligible collective investment schemes while ensuring investor protection.
The Japanese Government Pension Investment Fund (GPIF), the world’s largest pension fund with assets under management of over JPY139.8 trillion as of December 2015, is taking measures to shift their asset allocation strategies to better match their long-term pension liabilities.
In October 2014, the GPIF announced a change to its investment portfolio allocation, decreasing domestic fixed-income from 60 to 35 per cent and increasing the:
- share of domestic equities from 12 to 25 per cent
- foreign fixed-income from 11 to 15 per cent
- foreign equities from 12 to 25 per cent.
The GPIF has shifted its investment portfolio allocation in order to reflect its new Policy Asset Mix since the change was announced. As of December 2015, the allocation was; domestic bonds 37.76 per cent, domestic equities 23.35 per cent, international bonds 13.60 per cent, international equities 22.82 per cent, and short-term assets 2.57 per cent.
Four major public pension funds, GPIF, Pension Fund Association for Local Government Officials (Chikyoren), the Federation of National Public Service Personnel Mutual Aid Association (KKR) and Promotion and Mutual Aid Corporation for the Private Schools of Japan, have been reducing exposure to Japanese government bonds.
After launching co-investment scheme with OMERS, DBJ and Nissay Asset Management in 2014, GPIF has been seeking to strengthen an alternative investment team.
Other public pension funds such as Pension Fund Association for Local Government Officials (which has assets under management of JPY 36.7 trillion (March 2016) and KKR (Federation of National Public Service Personnel Mutual Aid Association with asset under management of JPY 7.1 trillion) issued requests for proposals for global and domestic real estate investments and have started the asset manager entry program for their alternative investment in 2015.
Japan Post Bank, the nation’s biggest holder of deposits with USD$2 trillion in assets, plans to boost investments in alternative assets and its CIO indicated that they would allocate a few hundred billion yen toward alternative assets such as private equity, real estate and hedge funds this business year.
Recently, Japan Post Insurance Company announced plans to invest more in stocks - both domestic and international - and other risk assets while diminishing its holdings of negative-yielding yen-denominated bonds.
Tokyo Stock Exchange announced the establishment of a listed infrastructure fund market in April 2015. The target facilities announced by Tokyo Stock Exchange include public facilities (concessions), and transport and energy infrastructures (railroads, harbor facilities, pipelines, etc.) in addition to renewable energy-based power generation facilities.
The first one was listed on 2 June 2016. This fund is targeting to invest in renewable energy-based power generation facilities including mega (large-scale) solar power plants.
Australian financial services firms in Japan
Macquarie Capital, AMP Capital, First State Investments and IFM Investors have established a presence in the market targeting Japanese institutional and retail investors. The Commonwealth Bank, National Australia Bank and ANZ have branch offices located in Tokyo.
In May 2015, Mitsui, Japan's second biggest trading company, took a 20 per cent stake in Westbourne Capital, a debt infrastructure boutique, to strengthen the firm's balance sheet and enable it to co-invest alongside clients.
Nippon Life, Japan's largest private-sector life insurer with $500 billion in assets, agreed to acquire an 80 per cent stake of NAB’s life insurance arm in October 2015.
Tariffs, regulations and customs
As in Australia, the financial services sector in Japan is highly regulated, with relevant laws including the Banking Act, Financial Instruments and Exchange Act (regulating various financial products and services including funds) and the Insurance Business Act. The acquisition of financial licenses through the Japanese Government is required to provide financial services in the market.
The Financial Services Agency in Japan oversees the operation of financial markets and firms in banking, securities and exchange and insurance.
Links and industry contacts
Government, business and trade
Bank of Japan
The Commodity Futures Association of Japan (Japanese only)
The Financial Futures Association of Japan
Financial Services Agency
Foreign Non-Life Insurance Association of Japan
The General Insurance Association of Japan
International Bankers Association
The Investment Trusts Association, Japan
Japan CTA (Commodity Trading Advisors) Association
Japan Financial Services Association (Japanese only)
Japan Investment Advisers Association
Japan Pension Services
Japan Private Equity Association
Japan Securities Dealers Association
Japan Venture Capital Association
Japanese Bankers Association
The Life Insurance Association of Japan
Osaka Securities exchange/JASDAQ
Regional Banks Association of Japan
The Second Association of Regional Banks
Securities and Exchange Surveillance Committee
Tokyo Financial Exchange Inc
Tokyo Stock exchange
Trust Companies Association of Japan
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