During the bubble economy of the 1980s, Japan was a behemoth of global finance, with Tokyo and its financial institutions vying neck and neck with New York City and London. But everything changed when the country's asset price bubble burst in 1992, generating a loss of 100 trillion yen -- approximately 20 percent of Japan's total gross domestic product -- over the course of a decade. Despite successful restructuring efforts, Japan's financial sector continues to be overshadowed by its counterparts in New York and London as well as its close neighbors in Singapore and Hong Kong. But the world is in constant flux and recent events such as Brexit and the Hong Kong protests signal opportunities for Japan to reclaim its former standing. In order to realize these opportunities and promote investment in Japan, veterans of Japanese finance have come together to form The Organization of Global Financial City Tokyo, also known as FinCity.Tokyo.
In recent years, a surge of hedge funds and private equity funds have cropped up in Tokyo's chief metropolitan area. These funds are gathering in the Kabutocho neighborhood of Nihonbashi, where, during Japan's bubble economy, thousands of brokers crowded the trading floor of the Tokyo Stock Exchange. The area has since quietened due to the introduction of an electronic trading system. Over the past two years, however, many funds have set up shop in the former traders' stomping ground. Spurring this influx was the "Global Financial City: Tokyo" initiative introduced by Tokyo Gov. Yuriko Koike in November 2017.
That's because the government subjects long-term foreign residents to inheritance tax of up to 55 percent on their worldwide assets -- meaning heirs could be forced to give up their family homes or businesses even if they've never set foot in Japan. Now, Tokyo Gov. Yuriko Koike is trying to ease the impact of the rule as part of her bid to make the city a global financial hub. Her government released a report last Friday urging for the rule to be reviewed, together with other measures aimed at attracting asset managers to the Japanese capital instead of rival centers such as Hong Kong and Singapore. Yet there's no guarantee that Prime Minister Shinzo Abe's government will heed Koike's call on the tax, especially since the law was only just amended in April. "Japan doesn't seem to want long-term residents anymore," said Paul Hunter, secretary general of the Tokyo-based International Bankers Association which represents about 50 overseas financial institutions and has been lobbying against the rule.
In a tiny, windowless meeting room high above the streets of Tokyo, Haruhiro Nakano starts to cry. The rail-thin, 54-year-old fund manager, who looks like a faded former J-pop star, has just shared his investing pitch, which sounds so deceptively simple you may not appreciate just how radical it is: Japanese workers, Nakano says, should invest for retirement using the capital markets rather than letting more than $8.6 trillion fester in bank accounts.