Revision for the "Global Financial City: Tokyo" Vision : Nakaso Hiroshi|TMC Talks Vol.11

This article is a transcription of a speech given by Nakaso Hiroshi Chairman of Fin City Tokyo, at TMC Talks held by the Tokyo Media Center (TMC) on Aug 5.

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The Global Financial City Tokyo|TMC Talk Vol.XX

Good day, everyone, and thank you for joining me today. I think many of you are here for the Tokyo Olympic Games. The road to Tokyo Olympic Games was long and winding, but I am glad it has been successful after all.

And of course, I would like to welcome you by demonstrating our Omotenashi hospitality, the culture of Japan, which is unfortunately disrupted by the pandemic this time around. Still, I think the Olympic Games told us they did in the past that the people of the world can get united and in motions and in goodwill. I hope it does not end merely as a midsummer dream.

Today as the Tokyo Olympic Games near its finale, I would like to take this opportunity to explain to the media people in Japan and overseas about the Tokyo is another initiative after the Olympics, namely the initiative to upgrade Tokyo's financial markets into a global financial center.

We need better functioning financial intermediaries to serve the people and to meet the challenges that we face today. Like the Olympic Games, a financial center needs good infrastructure and financial professionals to perform their skills. So, we welcome entries of highly skilled professionals from overseas to compete with Japanese players here in the Tokyo market.

So, let me talk about Tokyo's financial center initiative. It is driven by the Tokyo Metropolitan Government and the organization of the global financial city Tokyo or FinCity.Tokyo, which I serve as Chairman.

Now, this slide provides an overview of FinCity.Tokyo.
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FinCity.Tokyo was established in 2019 as Japan's first public-private partnership financial promotional organization based on the "Global Financial City: Tokyo" Vision, formulated by Tokyo Governor Ms. Koike Yuriko in 2017. Our goal is not to just build scale like the "bubble" era in the late 1980s. Back then, Tokyo was the financial center and was based on what then appeared to have been a powerful Fleet of Japanese banks, which was often compared to the invincible Spanish Armada in the international financial community.

Now we do not want the revival of a financial center that just boosts its size. Rather, our goal is to upgrade Tokyo as a financial center that can help resolve Japan's social and economic challenges through effective utilization of household assets which amounts to almost 18 trillion dollars, and that brings Japan's economy back on track to sustain growth.

So, the initiative is launched not for the sake of Tokyo alone but to serve the entire society and economy. FinCity.Tokyo's key role is to collect and disseminate the information through dialogues with those stakeholders around the world. We have daily interaction with domestic and foreign and financial institutions including banks, institution investors, asset managers, and fintech companies. They provide us with good ideas on how Tokyo can offer business opportunities or how Tokyo can be elevated to a global financial center more broadly. The specific needs are then translated into concrete policy recommendations. The government took them very seriously and the financial center initiative is now a national project pursued by this Suga administration. Many actions including tax reforms and relaxation of visa requirements were taken this year. FinCity.Tokyo in this regard functions as a kind of intermediary among the financial industry, the Tokyo Metropolitan Government, the government, and the ruling party. I think this channel worked extremely well and we were able to achieve more concrete actions than we had initially expected.

Now FinCity.Tokyo's function is not unique. There are similar bodies overseas promoting their own financial centers. As a matter of fact, we work with a range of peers overseas such as the City UK in the United Kingdom, Paris LaPlace in France, Frankfurt Mine finance in Germany, and the financial services development council in Hong Kong.

As shown in this first slide I think four components are necessary to be a financial city.

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Diverse business opportunities and innovation supported by talented and creative people are obvious our drivers.

But I think culture also matters. I know creative human resources tend to gather in cities where culture is rich. Therefore, I think nurturing culture is essential to enhance the attractiveness of a financial city. Financial cities in the world tend to have active scenes for performing arts I think. And Tokyo offer in this regard has a lot to offer culturally. Tokyo formally named Edo had been the city where the samurai shogunate, Tokugawa shogunate ruled the country for 300 years before becoming the capital of modern Japan almost 150 years ago. We also have to rule the country for 300 years before becoming the capital of modern Japan almost 150 years ago. So it is a city blended with traditional and modern elements of Japanese culture. The culture is very diverse, for example talking about gastronomy, for your information, Michelin Awards stars to more than 200 restaurants in Tokyo, which is unparalleled by any major city in the world including Paris incidentally. Tokyo has a network of well-developed public transportation that takes you to every cultural spot, and indeed trains operate with utmost precision. To me, they seem to be a bit obsessed with the notion of precision that if a train arrives at its destination 3 minutes late, the conductor would apologize for the delay.

Tokyo is also known to have a very low crime rate making it probably the safest major city in the world. It is probably the only major city in the world where are you can take a nap safely on a subway train.

And of course, I must not forget jazz. The argument that financial cities thrive on rich cultures, cultural life is supported by an interesting correlation between jazz and finance.

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And as shown in this slide, among the cities selected as 25 world jazz cities, 13 are ranked in the global power city index published by the Mori Memorial Foundation.

And in Asia, only Tokyo is included among the 25 best jazz cities. So in order for Tokyo to grow as a financial city, we will continue to focus on cultural aspects. I have to say I am very sorry that you have you are unable to explore Tokyo culture for yourselves this time around but please do come back out when the pandemic is behind us.

Let me talk about what kind of financial center Tokyo would like to be.

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Obviously, we know we have to take into account the dramatic changes in the environment surrounding international finance, particularly in recent years. Key factors include changing situation in East Asia. Brexit, race to the green as the government said for carbon neutral by the middle of the century, and of course the pandemic that continues to be a threat to the world.

So to respond to these changes and challenges, we embarked on the project to revise the "Global Financial City: Tokyo" Vision which was I said only formulated in 2017.

We thought we needed a new blueprint.

Another chair of the advisory panel connected this project, I have recently announced a new proposal for the revision of the division concept based on our discussion and the panel.

This slide shows the outline of the revised visions.

And as you see it has three policy pillars

First, the promotion of green finance through a new strategic effort called Tokyo Green Financial Initiative, or TGFI. And second, financial digitalization. And third, accumulation of a wide range of financial players. Responding to the deepening climate change is a particularly urgent issue that we have to collectively tackle.

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When I was a kid, we didn't have air conditioners in our school classrooms. But this is no longer possible in this sweating summer heat these days. I think this is something that has to do with climate change.

Now, since the entire Japanese industry must head for carbon neutral by 2050. All firms including the middle stand companies must go green. Given the Japanese thick multi-layered industrial base, this requires a huge amount of investment and this must be fine and smooth. And against the background that we want to promote Tokyo's role as a green financial center to help firms in Japan as well as in those firms in the Asia Pacific region to meet the big financing requirements. Therefore, Tokyo tends to be a financial center that connects domestic and global investors with the industrial sector's huge financing demand to meet the challenges in the post-COVID world.

ESG investment is at the core of sustainable financing to address climate change. Looking at the current state of financing in the private market as you see in the slide, ESG investment is expanding rapidly worldwide. And two years from 2016 the total global ESG investment, which you see on the left side, grew from 23 Trillion dollars to 31 Trillion dollars, which is a 30 percent increase and in Japan, as you see on the right, it increased by 4.2 times from 0.5 trillion dollars to 2.1 trillion dollars. And as a matter of fact, Japan's ESG investment amount is the third-largest in the world after Europe and the United States.

But of course, from a global perspective, Japan's share is still small at 7 percent. This, however, means that there is significant room for market expansion in Japan. And this is exactly what is happening in Japan.

This slide gives you a closer look at Japan.

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On the left, you see the ratio of ESG assets to total assets under management in Japan rose by about 15 percent between 2016 and 2018. Now I think this evidence is increasing the importance of ESG and the Japanese asset management industry. And this is taking place simultaneously with the diversification of the investment products. Green Bond is a typical instrument.

The chart on the right shows a rapid expansion in this amount and the amount of green bonds issued by Japanese corporate firms which reached as you can see, 9.8 billion dollars in 2020. And this implies the amount increased by an average of 76 percent annually between 2014 and 2020. I am quite sure that this trend is going to continue. This will provide domestic and overseas investors with ample investment opportunities.

As I mentioned earlier, Tokyo launched the Tokyo Green Finance Initiative, or TGFI. As my final part of my presentation, I want to elaborate a little bit more on this initiative.

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It is Tokyo's new strategic initiative to create a green finance ecosystem for investors and businesses from across the world. It represents Tokyo's desire and willingness to become a green global financial center.

The initiative comprises three pillars.

The first pillar focuses on the development of a Green finance market. Here the demarcation of roles between the government and Tokyo, is that the government builds the infrastructure and Tokyo utilizes it. For example, the government in collaboration with the Tokyo Stock exchange is installing a verification system that identifies which are green bonds which are not. The government is also building an information platform. The Tokyo Metropolitan Government intends to use the platform, in disclosing corporate firms ESG related information it owns in a way that is easily accessible for any investors or any other interested parties.

The second pillar is about expanding the base of participating players in green financing. Foreign players are welcome and for example, Tokyo stands in this regard, ready to support incoming foreign firms in obtaining licenses. Also, Tokyo intends to take steps to reduce the cost burden for foreign financial companies, engaged in green finance when starting a business in Tokyo. Furthermore, Tokyo will also provide business matching services for incoming firms to find suitable business partners in Tokyo.

The third is about sharing information with the public on the latest environmental policies and available technologies. Here the strategy is to launch a number of projects related to Tokyo's sustainable recovery. With the name of generating demand for green financing. Meanwhile, as a part of the third pillar, Tokyo is also serious about nurturing human resources skilled in ESG. In this area, we plan to collaborate with a range of universities and research institutes in Tokyo to foster professionals that are highly skilled in sustainable finance. So, in this way, I think the Tokyo Green Finance Initiative will add to the momentum towards green economic recovery.

Finally, I want to offer some information on the Japan National Stadium shown in the photo here, which is the course venue for the Olympic Games. The exterior of the stadium makes abundant use of timber up to the very top of specifically cedar trees sourced from Japan's 47 prefectures are being used. And they are placed facing the direction of their home a prefecture to symbolize a sense of unity of the entire nation. The stadiums are also designed to be environmentally friendly, maximizing ventilation by bringing winds into the stadium and making use of solar power. This is just another example of how serious we are to become green.

Tokyo Olympic Games will be over in a few days, and I hope you go back home with the memories of the games under extraordinary circumstances along with the message I delivered this afternoon that Tokyo wants to be a greener or the greenest city by functioning as a global financial center.

In closing let me demonstrate our commitment by presenting a short promotional video that FinCity.Tokyo produced in collaboration with the Tokyo Metropolitan Government.

Thank you very much for joining me today.

Nakaso Hiroshi, Chairman, FinCity.Tokyo

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Nakaso Hiroshi was appointed chairman of a new organization to promote Tokyo as a global financial center. The new organization is known by its abbreviated name, "FinCity.Tokyo". He was appointed chairman of the Daiwa Institute of Research (DIR) in July 2018 after completing his term as Deputy Governor of the Bank of Japan. He served as the Deputy Governor of the BOJ since March 2013. In his 39 years at the Bank, his main responsibilities have been crisis management of financial systems and markets focusing on global systems. He dealt with the homegrown financial crisis of the 1990s. He headed the exit operation from the Quantitative Easing Policy, a prototypical unconventional policy that lasted from 2001 to 2006. In addition, he played an instrumental role in addressing the Global Financial Crisis together with his peers at major central banks including the FRB.
Some quotes have been paraphrased.