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How Japan should make use of its ¥1 quadrillion in household savings

15 9 1

As part of his Abenomics program, former Prime Minister Shinzo Abe, who took office in December 2012, compiled a growth strategy so that more households and public funds would invest in risk assets and growing businesses.

To get the ball rolling, an expert panel recommended in late 2013 to vitalize financial and capital markets, pointing out that nearly half of household assets — totaling around ¥1.6 quadrillion at the time — were held in cash and deposits. Public pensions are also holding massive amounts of Japanese government bonds (JGBs).

The panel described them as “inactive” funds and called for the implementation of strategic structural reform of financial and capital markets to stimulate private sector investments in growing sectors. The panel also said it was necessary to contribute to the economic development of other Asian countries by taking various measures including facilitating corporate funding in such countries.

Nearly eight years have passed, however, and Japan’s structural reform in the financial sector has proceeded at a snail’s pace — or at least not quick enough for the nation to become a leading international financial center by 2020, as envisaged by the panel’s recommendations.

Financial assets held by households hit a record ¥1.946 quadrillion as of the end of March thanks to a rise in stock prices and a decline in consumption as people stayed home amid the COVID-19 pandemic, according to Bank of Japan statistics released in June.

But even though household financial assets have increased in the last eight years, 54% of such assets — about ¥1.056 quadrillion — are still in cash and deposits, not in equities. Assets of Japan’s financial institutions are also largely held in the form of loans and government bonds, markedly higher than in Western nations.

Money in Japan, it appears, remains inactive.

Some of the measures to improve the investment environment have been put into practice to a certain extent, albeit slowly, such as the introduction of Nippon Individual Savings Accounts (NISA) to encourage small-size investment by individuals; governance reform of the Government Pension Investment Fund, the world’s largest pension fund; and the creation of the Japanese version of a stewardship code for institutional investors.

On the other hand, there were many cases in both the public and private sectors that indicate deep-rooted structural hurdles to improving the asset management ability of Japan’s investment management businesses.

For instance, efforts to enhance the asset management ability of Japan Post Bank Co. — one of the biggest banks in the world with total assets of ¥200 trillion — lost its steam half-way through.

After Japan Post Bank went public in 2015, the bank adopted a policy to strengthen its asset management, shifting away from JGBs to market equities, foreign bonds, hedge funds and alternative assets such as private equities.

The bank hired investment professionals by introducing an incentive structure meant to........

© The Japan Times

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