Japan To Emulate Hong Kong and Singapore? National Regulator Has Great Expectations

Japan’s Financial Services Agency releases comprehensive white paper on methods of regenerating the nation’s ailing economy, envisaging Tokyo as a market hub for cross-currency trading

Despite the Japanese investing public’s continual appetite for FX trading which has placed the country’s large domestic retail FX firms at the very top of the worldwide market share table for many years, Japan’s overall economy has suffered tremendously since the global financial crisis began in 2008, followed by a series of natural disasters which created significant setbacks more recently.

Although the country remains host to the world’s third largest economy, the government has toiled incessantly to redress Japan’s fiscal difficulties and set its economy back on the right track, with the latest installment being a detailed digest from the national regulator, the Japanese Financial Services Agency (JFSA) which along with a panel of six of the nation’s revered academics and industry leaders sets forth proposals for opening up Tokyo’s markets to rival those of the homes of large-scale institutional trading, Hong Kong and Singapore.

“Efforts will be made to facilitate the trading of Asian currencies on the Tokyo market so that the market will function as a global market hub for cross-currency transactions of Japanese Yen, US Dollar, Renminbi, and others” states the document, which was originally issued on December 13 in Japan but has today been made available for international viewing.

The panel, which is chaired by Takatoshi ITO Professor, Graduate School of Economics at the University of Tokyo and includes Yoichiro IWAMA Chairman of the Japan Investment Advisers Association, Masayuki OKU Chairman of the Board at Sumitomo Mitsui Financial Group, Yorihiko KOJIMA Chairman of the Board at Mitsubishi Corporation, Atsushi SAITO Director and Representative Executive Officer, Group CEO of Japan Exchange Group, and Naoyuki YOSHINO Professor, Graduate School of Economics at Keio University, has been commissioned to work along side the secretariat which is comprised of both the JFSA and the Japanese Ministry of Finance on the study.

Regulations on foreign currency exchange and capital controls still remain in many Asian countries. At the same time, transactions in their local currencies have expanded in line with their economic developments.

The panel anticipates that in 2020, the relationships between other Asian countries and Japan will be tightened, with regard to human resources, goods, capital, and services. This may have an effect on FX liquidity in the region,

As a further consideration, the panel has concurred that in response to Japanese companies’ needs for ways to facilitate their obtaining of local currencies, it is important to steadily take necessary measures that enable Japanese financial institutions to serve as agents or intermediaries for transactions between foreign banks and Japanese companies. 

Support from public sector financial institutions should be enhanced. Such support includes local currency-denominated private sector investments and finance by the Japan International Cooperation Agency (JICA) and guarantees for inter-bank currency swaps by the Japan Bank for International Cooperation (JBIC.)

In order to strengthen the regional financial safety net, it has also been considered important by the panel to enhance bilateral swap arrangements with Asian countries.

Furthermore, through regional financial cooperation, it has been agreed by the secretariat that market functions of the whole Asian region should be improved, exemplified by the suggestion that the facilitation of cross-border securities investment and cross-currency transactions should be enhanced by developing infrastructures for intra-region cross-border securities settlements, which follows a similar line of thinking to the Japanese government’s perspective on collaborating with European and American regulatory authorities when considering a standardized method of overseeing cross-border OTC transactions.

Furthermore, the facilitation of cross-border securities investment and cross-currency transactions should be enhanced by developing infrastructures for intra-region cross-border securities settlements. It is also important to develop a settlement environment for retail remittances.

It has also been deemed necessary to make progress on the standardization of bond issuance procedures and development of a settlement environment for foreign currency-denominated bonds.

Improvements of legal stability with regard to cross-border securities issuances and derivatives contracts, including legal status in a bankruptcy, will be important in securing stability and transparency in financial markets.

When considering the dominance of Hong Kong and Singapore as jurisdictions with strong economies, and large institutional trading desks within the bank sector, along with Japan’s predilection for retail FX, facilitating ease of access to these other Asian markets could indeed prove to be a sensible move for Japan, potentially opening Tokyo up for business as the next institutional FX destination, along with the chance for the sun to rise once again on Japan’s vast economic base.

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