Tokyo can become a regional centre for channelling global long term investment into southeast Asia and other capital-hungry regions, the head of Japan’s stock exchange told Emerging Markets.
East Asia needs around $8tr over the next decade to finance investment in its infrastructure base that will support the region’s continuing dynamic growth, according to the ADB.
With an officially estimated ¥1,500tr ($150tr) in household savings, Japan is — in theory at least — well placed to provide a substantial share of this funding.
It has not been possible up to now because most Japanese like to keep their money in banks or in perceived low risk Japanese government bonds or JGBs.
But Atsushi Saito, head of the Japan Exchange Group JPX (formerly the Tokyo Stock Exchange) said he had found a way to match supply with demand in this regard.
In an interview with Emerging Markets Saito, who is a former president of Sumitomo Life Investment, outlined his vision of how Tokyo would evolve within a changing Asian capital market universe — one where the needs of the region for investment in infrastructure and other capital-intensive projects will be met by a shift toward long term, fixed income investment.
“Our idea is to set up a pipeline between Tokyo and Asian countries [using] bonds or infra funds,” said Saito, who sees scope for collaboration between JPX and other Asian stock exchanges.
Saito said Tokyo was a natural hub for the Asian debt market given Japan’s long and close economic relationship with the region. Last year, Japan made $40bn of foreign direct investment in Asia and can help build infrastructure to support such investment, he said.
LIFE BEYOND JGBS
As Japan’s economy recovers and bond yields rise under the impact of the Bank of Japan’s 2% annual inflation target, Japanese individual and institutional investors will look for higher returns than they can earn on JGBs, and money will flow increasingly overseas, Saito said.
He said he had discussed the idea of creating an Asian fixed income market with ADB president Haruhiko Kuroda, the former governor of the BoJ.
Such a market appears slowly to be taking shape as the Tokyo exchange — the second biggest in the world in terms of capitalisation and by far the biggest in Asia — focuses on building its pro-bond market and preparing to launch a listed infrastructure market.
JPX’s pro-bonds — a market aimed at professional investors without the protections normally offered to small investors — lists bonds and medium term notes on behalf of foreign as well Japanese issuers.
“I would like to increase the role of this pro-bond market,” said Saito. He said the ADB and India’s ICICI Bank were among initial issuers in the market, where English-language documentation is permitted, unlike the case of Japan’s well known Samurai bond market.
JPX is also preparing an infrastructure fund market, according to Saito. The first issue is expected at the end of this year, for solar power financing. Japan’s government is giving tax benefits for this type of issue and Saito says he hopes this will apply in future to projects such as “roads, bridges, ports or harbours”.