Governor Yuriko Koike discusses plans, progress and potential hurdles in Tokyo’s efforts to reclaim the mantle of a top world financial center for the 21st century.
After re-election last summer with nearly 60% of the vote, Yuriko Koike is now in her fifth year as governor of Tokyo and forging ahead with plans to revive the city’s status as a top-tier worldwide center of finance, under the banner “Global Financial City: Tokyo.” At the center of the effort are initiatives to make Japan more hospitable to foreign capital and foreign financial institutions via revisions to tax, licensing and other laws, as well as enhanced services for businesses and foreign residents. The plan aims to unlock the potential of some of Japan’s underutilized resources, and work in tandem with the city government’s “Time To Act” initiative, launched in February, to accelerate climate action and restore a sustainable way of life. Governor Koike discusses plans, progress and potential hurdles with Global Finance.
Global Finance: Tokyo is unquestionably a world-class city and Japan a leading world economy, possessed of much wealth. Isn’t Tokyo already a global financial center?
Yuriko Koike: Let me first note that, on the most recent rankings of global financial centers—and there are various kinds out there—Tokyo is fourth in the world, only slightly behind Shanghai, our neighbor in Asia. Our understanding is that Tokyo has already gained a certain recognition as a global financial city. Notwithstanding, and regrettably, Tokyo has not yet secured exceptional status on par with New York and London.
At the same time, Japan is third in the world in GDP with diverse industries. A great part of our assets rest idle in the form of savings: 1,900 trillion yen [$18 trillion]. Astonishing! The potential of these sleeping assets is more-than-fertile ground for building the world’s top global financial city. Tokyo is moving these agendas forward relentlessly with determination, and I am convinced our efforts will succeed. I was elected as governor of Tokyo in 2016, and we formulated this vision for “Global Financial City: Tokyo” in the year after that.
GF: What are the key measures you are taking to change the situation?
Koike: We have boldly unrolled diverse measures according to this vision so far. At the national level, we will be reviewing the tax system and regulations; we have to. A review of tax laws is slated for the next fiscal year (which starts in April 2021) which will put in place measures to reduce the corporate tax, income tax and inheritance tax. This is a radical step, and we hope it will help accelerate—accelerate—the realization of our goal of being a leading financial hub for Asia and the world.
“There is a need to cultivate domestic operators, and in parallel, to aggressively attract financial companies and talents from abroad.”
As for individual initiatives: We are building a system that provides one-stop consultation for financial companies seeking to branch out into Tokyo. In terms of domestic financial operators, there are already cooperative relationships and partnerships, but I think it’s essential to enhance them further. We cannot be spending our time just talking, without action. Under the spirit of Time to Act, with powerful cooperation among the Tokyo Metropolitan Government (TMG), the national government and the private sector, we want to be taking aggressive and bold actions.
But there is still the issue of language, and also the business of figuring out the tax system, regulations, education and health care, as well as the living environment. There is the attractiveness of our financial market [to think about] and the investment appetite among the Japanese people, with, well, 1,900 trillion yen. We certainly have great room for improvement still.
With post-Covid Tokyo in view, we are facilitating sustainable recovery with support from the financial end. For this to happen, it’s absolutely necessary to have green financing going; and we are eager to provide further assistance to asset managers and fintechs. Through these actions that reflect the changes in the global scene, I am certain the world’s top Global Financial City: Tokyo will become a reality.
GF: Why the renewed sense of urgency now?
Koike: In terms of the current global environment for international finance, as you all know there’s Brexit, Britain’s exit from the EU. Asia is in quite a tumultuous state. At the same time, there has never been such heightened global interest in sustainable development goals [SDGs] and ESG [environmental, social and governance]-related investments. Also, to touch on a negative element, we are fighting Covid-19. The whole world is shaking, and we find ourselves literally in the midst of turbulence.
Tokyo has a great opportunity to rise to the challenge of such circumstances and be chosen by the world as a global finance center. We think this is a big chance for us now, perhaps even our last chance. This is why our responses need to be prompt and on target all the more, in my thinking. So, with such sense of crisis pushing us, we are reviewing the vision we formulated over three years ago and updating it from a medium- to long-term perspective. We are taking swift action presently, greatly strengthening our efforts to attract foreign-based financial institutions.
GF: What do you see as the greatest potential obstacles to successfully executing the plan—such as time, Covid-19 or maybe culture?
Koike: Well … all of them, perhaps. First, in order to build the world’s top international financial city, the TMG, the national government, the people of Japan individually and also the private sector need to work together as a team, as “All Japan,” and powerfully move forward. With the current vision drawn up, there is a common understanding formed among the parties about building the financial hub for the world and Asia. This has generated momentum for executing the necessary actions. Going forward, we hope our updated vision will further deepen the common understanding and inspire the parties to stronger cooperation.
GF: What role is the national government playing? Are you getting the support you need?
Koike: The national government is responsible for the tax system and has jurisdiction over the rules of licensing related to financial services, so its proactive engagement is critical. The national government is now putting in place measures to reduce the burdens of corporate tax, income tax and inheritance tax, so as to build an international financial hub that is open to the world. We are expecting to see this for the next fiscal year, and discussions are currently underway in the Diet. The TMG has also on various occasions made demands to have residency-status regulations reviewed. These actions by the national government accelerate the realization of our goal, and we hope the national government will continue to move forward with reforms that give momentum to our efforts to attract foreign-based financial companies and talents. The TMG will be working closely with the related ministries and agencies.
GF: What response or support are you receiving from Japan’s corporates and the domestic financial sector?
Koike: In order for Tokyo to become a financial hub for the world and Asia, it is essential to vigorously implement initiatives as All Japan: Cooperation between TMG, the national government and the private sector is crucial. Against this backdrop, we have received various kinds of cooperation from the private sector. For example, in formulating the vision, we received valuable suggestions from numerous people in the financial industry about the direction we should take and what measures are necessary. In addition, many private companies, including banks, securities firms and asset managers have participated in the establishment of FinCity.Tokyo, a public-private partnership to promote and develop the financial industry, and have supported its activities, including events in Japan and overseas.
GF: Japan prizes stability. In 2008, aggressive Western finance practices caused a global financial crisis. In seeking to draw foreign finance, are you possibly inviting foxes to guard your henhouse—in Japanese terms, trusting the cat with the dried bonito fish?
Koike: Dried bonito is hard; it’s not chewable. We would need a bonito flake shaver. Women, in terms of furthering diversity, function as the shaver. Half of the population in Japan are women, are they not? So, utilizing women … well, if we don’t make good use of their energy, we are being wasteful. Women are too precious to waste. That’s how I feel.
The potential of women is being wasted; 1,900 trillion yen is being wasted. How do we mobilize these assets?”
Making Tokyo the world’s top international financial city, where a wide range of talents, funds and information are gathered from inside and outside Japan—in my mind, that revitalizes the economy of the Tokyo metropolitan area; and that leads to growing Tokyo, which in turn is a benefit to the residents of the Tokyo metropolitan area as well as the people of Japan.
Another point is that, compared to major international financial cities abroad, the number of asset management companies and fintech companies in Tokyo is, well, low … isn’t it? There is a need to cultivate domestic operators, and in parallel, to aggressively attract financial companies and talents from abroad. By tapping into the energy and speedy tempo of financial companies from abroad, we hope to make Tokyo the world’s top international financial city.
As for the dried bonito: The fox, the cat, the dog—everyone—can enjoy a delicious Japanese meal together using the dried bonito. And I hope that would add to the appeal of Tokyo. I think it’s so very wasteful to have assets of 1,900 trillion yen left idle. The potential of women is being wasted; 1,900 trillion yen is being wasted. How do we mobilize these assets? I think that’s connected to the growth of Japan, and that’s also the very big agenda for the project: to energize the Tokyo market itself. Using the angles of SDGs and ESG, we need to awaken the Japanese investors’ and Japanese people’s 1,900 trillion yen that is sleeping and direct our efforts to improving the environment of Japan, to improving our society, to improving the environment of the world. We hope to be able to do that. Please work with us.
GF: Governor Koike, thank you for your time and insights.
This interview has been lightly edited for clarity and flow. A significantly condensed version appeared in the March issue of Global Finance.