Japan’s Prime Minister: How Japan is promoting a ‘new form of capitalism’

Japanese Prime Minister Fumio Kishida says the government of Japan aims to transform social issues into growth engines, in close coordination with the private sector.

In a keynote address via video message on January 23 at the Goldman Sachs Global Macro Conference in Hong Kong, the prime minister also outlined the government’s efforts to create a “virtuous cycle of growth and distribution”:

Hello everyone. I am Kishida Fumio, Japan’s Prime Minister.

It is my pleasure to deliver a message to one of the largest conferences in Asia for global investors.
As you may know, the Government of Japan is promoting a “new form of capitalism” that transforms social issues into growth engines in close coordination with the private sector.

As a result, we reached 30-year highs on a variety of indicators last year, including wage growth, domestic private investment and the NIKKEI stock index.

Now Japan has a golden opportunity to completely overcome low economic growth and a deflationary environment that have persisted for a quarter of a century.

In order to seize this opportunity and transition to a new economy with a virtuous cycle of growth and distribution, we will strive to strengthen the earning capacities of companies, including by promoting domestic investment in strategic sectors such as semiconductors.

These strengthened capacities are essential to achieve a further increase in wages above the level of inflation.

Financial and capital markets are a foundation of economic activities and play a crucial role in achieving this virtuous cycle of growth and distribution. Over half of Japan’s household financial assets of more than 15 trillion US Dollars is still in the form of cash and deposits. The government will undertake reforms of Japan’s financial and capital markets to create a virtuous cycle in the investment chain as well. In this cycle, household savings will shift toward productive investment; this investment will then contribute to an increase in companies’ corporate value and the benefits from them will be returned to households, leading to further private sector investment and consumption.

To this end, the government has implemented, and plans to implement, three sets of initiatives.

First, the government started the new NISA this January. The NISA is a tax exemption scheme for retail investors and has been expanded drastically and made permanent since the beginning of this year. By promoting a shift of household financial assets from savings to investment, the government expects Japan’s household financial assets to be utilized fully to increase national income and improve companies’ earnings capacities.

Second, increasing the attractiveness of companies is essential to make such investment flows happen. The government will further advance corporate governance reforms to promote more investment in human capital, including through wage increases, and increase the medium- to long-term value of listed companies.

This January, the Tokyo Stock Exchange (TSE) launched an initiative to disclose the listed companies that are making efforts toward corporate management that is conscious about market valuations such as PBR (Price to Book Value Ratio) and cost of capital. The government is also working with the TSE to ensure that as many listed companies as possible make such efforts and engage in active dialogue with investors.

Third and finally, the government will work on reforming the asset management sector and asset ownership, those responsible for managing household assets entrusted to them. To reform the asset management sector, the government will rectify Japan’s unique business practices and entry barriers, and promote new entry of excellent domestic and overseas businesses. Also, the government will create special zones for financial and asset management businesses in collaboration with aspiring local governments to focus on improving the business and living environment. The details of support by national and local governments in these special zones will be developed as a package by June this year. To reform asset ownership, the government will develop a set of “Asset Owner Principles” by this summer. The Principles would clarify the roles expected of asset owners to bring appropriate investment results to beneficiaries.

It is also important to provide financing to startups that create innovation and improve corporate productivity. This would promote the growth and dynamism of Japan’s economy and provide diverse investment opportunities. To this end, we need to expand the investment flow from domestic and overseas institutional investors to domestic start-up companies via venture capital. Referring to actual practices overseas, the government will develop a code of conduct for venture capital, with the aim to improve the governance of venture capital and facilitate investment in venture capital by institutional investors.

Further, we will strengthen communications with stakeholders to ensure that the measures I have mentioned are implemented in a manner that meets their needs. To this end, an “Asset Management Forum” will be launched, in which Japanese and global investors can participate. A preparatory committee for the Forum has already been launched at the end of last year. I look forward to seeing many of you who are participating in today’s conference at the Forum to be held in Tokyo this year.

2024 will be a critical year for the Japanese economy as to whether it may go back to low growth and deflation again, or it can move toward a new economic stage. The Government of Japan, in close cooperation with the Bank of Japan, is determined to achieve wage increases above inflation by agile economic management in accordance with economic and price developments. And we will demonstrate to all of you Japan’s transition to a new economic stage by mobilizing all policy tools, including reforms of financial capital markets I have just mentioned.

Thank you for your attention.

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