Promoting Tokyo as an International Financial Center

Japan’s economic power is widely recognized worldwide—thanks to it being the worlds 2nd largest economy (US$4.3 trillion equivalent GDP in 2006) and having a high per capita income (US$34,000 in 2006). According to Flow of Funds accounts, the amount of total assets held by resident financial intermediaries was about US$24 trillion at end-2006 (of which, US$13 trillion was held by deposit taking institutions, US$4 trillion by pension funds and insurance firms, and US$7 trillion by other financial institutions). This substantial financial wealth was the 2nd largest after the United States. Relative to its economic power, however, Japan’s financial and capital markets have not realized their full potential. This is so in terms of providing diverse, innovative financial products and services at reasonable cost, giving domestic and foreign entities greater access to diverse sources of finance, and creating an active and self-disciplinary environment for the wholesale market. This paper analyzes the current performance of these markets and discusses the possibility of promoting Tokyo as a top international financial center. It also looks at the Japanese version of a Financial Big Bang launched in 1996 and reviews the visions proposed most recently by the Japanese Cabinet and discusses the remaining agenda.