New Asset Management and Corporate Finance Progress in Japan

Reporting on the results of the meeting, Treasury Deputy Secretary Lawrence H. Summers expressed general satisfaction with the Japanese Government’s implementation of the agreement so far. “We are reasonably pleased with the way things are going,” Summers said. “The Japanese Government has delivered an extensive number of legislative and regulatory changes required under the agreement to open up new opportunities in the financial sector. We are also encouraged by the significant additional deregulation of the corporate pension market now under consideration.

“We are already seeing some encouraging signs of progress on the ground in terms of new business for foreign financial institutions in the areas of asset management and corporate finance,” Summers said.

Summers emphasized the Treasury’s commitment to continue an intensive follow-up process to monitor the implementation of the Japanese commitments in the agreement.

Summers also said Treasury would continue to be engaged in promoting deregulation and liberalization in the Japanese financial market. “Looking forward, we want to continue to encourage positive changes in the Japanese financial system,” he said. “Improved transparency and stronger disclosure standards and the development of a more active domestic capital market, including a functioning asset-backed securities market, are important steps in responding to the challenges now facing the Japanese economy and its financial system.”

Following is a list of significant changes in the Japanese financial markets that have been implemented in accordance with the U.S.-Japan financial services agreement:

The JCY 1995 budget, approved in March 1995, gave investment advisory companies (IACs) full access to the $200 billion public pension fund market. The first IAC mandates, totaling roughly $850 million, were awarded in January 1996. U.S. firms won two of those mandates.

As a result of the elimination of restrictions on the corporate pension market, private pension fund assets under management by foreign IACs rose by more than one-third between March 1995 and September 1995. Balanced investment requirements on managers of public and private pension funds have been substantially liberalized, increasing the scope for specialization.

An advisory body to the Ministry of Health and Welfare issues a report in June 1995 supporting the revision of pension actuarial standards from a book-value to a market-value basis. The new standards will be written by this summer implemented in JFY 1997. At today’s meeting, the Finance Ministry reaffirmed its support for market-value accounting and its expectation that the actuarial standards will be revised by mid-1996.

Effective February 1, 1995, find managers were permitted to conduct investment trust (mutual fund) and pension fund management fund activities in one entity, significantly lowering the costs of entering the fund management business in Japan. The number of foreign firms licensed to engage in the Japanese mutual fund business has doubled from five before the agreement to ten today.