Japan sets out reform agenda for the asset management industry

The Government of Japan published a policy plan designed to reform Japan’s asset management sector and asset ownership.

Important context: Under Prime Minister Kishida, Japan’s Government has taken various measures to achieve greater household savings flow into more productive investments, such as:

• Doubling Asset-based Income Plan (November 2022) designed to support steady asset building by households, including significant expansion and permanent establishment of the tax exemption scheme for retail investors
• Corporate governance reforms (April 2023) designed to promote sustainable corporate growth and increased corporate value over the medium to long term

Policy plan: To reform Japan’s asset management sector and asset ownership, the ‘policy plan’ centers on the following themes. 

Asset management sector reform: Call for major financial groups to develop their plans to describe their asset management business strategy, enhance their investment management capabilities, and improve governance.

• Develop product governance principles to clarify the intended customers for individual financial products
• Rectify Japan‘s unique business practices and resolve barriers to entry through encouraging single-check calculation of net asset values of investment trusts 
• Establish special zones with a policy packaged published by summer 2024 
• Introduce a new program to assist new entrants and request financial institutions use emerging asset managers and not to exclude them simply because their business history is short. Additional plans to deregulate to allow asset managers to outsource middle- and back- office operations

Asset ownership reform: The government pledges to develop ‘asset owner principles’ by summer 2024 that include common principles of investment policy, governance, and risk management. 

• To reform occupational pension funds by reviewing the investment companies selected for defined benefit (DB) pensions and to promote disclosure of investment policy and portfolio information for defined contribution (DC) pensions
• To promote disclosure of investment information in a comparable manner

Financing for growth: To promote investment in start-up companies through the developments of principles for venture capital funds, deregulate investment crowdfunding, promote issuance and circulation of unlisted securities. 

• To diversify investment opportunities such as alternative investments and sustainable investments through allowing partial inclusion of non-listed equities in investment trusts and enhancing sustainability investment products

Stewardship activities: To work with the Tokyo Stock Exchange (TSE) to follow up on the initiatives of planning, disclosure, and implementation by listed companies.

• To promote effective engagement efforts between institutional investors and companies, including through a review of the large shareholding reporting rule

Public relations and communications: To launch the Asset Management Forum in collaboration with domestic and overseas investment companies and investors and establish a preparatory committee for the forum by the end of 2023.

Looking ahead: The Cabinet Secretariat will conduct a review of progress around June 2024.