Strengthening Asset Management / Reforms Necessary to Ensure More People Benefit from System

Editorial

18:04 JST, October 22, 2023

Asset management is an increasingly important issue in terms of securing funds for retirement and other purposes. Asset management companies and pension funds should be encouraged to reform so more people can benefit from their services.

Cash and bank deposits account for the majority of the about ¥2,100 trillion held by households in Japan. Meanwhile, in Europe and the United States, the figures for such assets are thought to be about 30% and 10%, respectively, underlining the conspicuous role that cash and deposits play in this nation. This disparity has been flagged as one of the reasons why Japan is behind the pace with regard to the building up of personal assets.

The value of cash and deposits has not depreciated during Japan’s prolonged period of deflation, but prices have been rising recently. If full-scale inflation sets in, the value of dormant cash and deposits will decline, underlining the need for people to consider investment options.

With average life expectancy on the rise, Japan is said to have entered a “100-year-life-span era” further emphasizing the importance of securing funds for retirement. Younger generations in particular are reportedly becoming increasingly interested in investing with an eye on protecting their personal assets.

From next January, the government will scrap the cap on the tax-exemption period for Nippon Individual Savings Accounts (NISA), in which incomes from small investments are not taxed; make the system permanent; and expand the investment limit. The government also intends to reform the asset management industry, which manages such funds.

Seven leading asset management firms operate under the umbrella of six major financial groups, including megabanks. The asset management firms are said to have prioritized the wishes of their respective parent companies over the interests of their clients, and developed easy-to-sell products with the aim of earning commissions.

There has been speculation that asset management firms have been finding it difficult to improve their investment capabilities — which requires a high level of expertise — due to the parent companies’ influence on personnel and management policies.

The government intends to require that major financial groups improve their investment capabilities and corporate governance, among other steps, and have them disclose concrete plans to achieve such goals.

The government will also encourage the entry of overseas asset management firms into the domestic market to increase competition within the industry, and establish special business zones tailored specifically to asset management businesses, in which such procedures as office openings can be conducted entirely in English.

The steps are aimed at instilling a sense of urgency within Japanese firms while spurring them to improve their investment capabilities. However, the government must also closely monitor the workings of overseas companies after their entry into the Japanese market.

Another task is to reform pension funds, which play a role in helping people build assets. In particular, corporate pension programs, which overly emphasize financial safety, are said to yield inadequate returns in many cases. However, since detailed performance figures are not disclosed, it is difficult to grasp the actual situation.

The government is going to consider a mechanism in which corporate pension programs would be required to disclose the details of their operations, and also establish a system that allows small corporate pension programs to be operated jointly with other companies.

Strengthening asset management is also intended to help channel household funds to companies through the stock market, aiming to lead to overall economic growth. The government should carefully explain the purpose and significance of its policy to avoid being criticized for giving preferential treatment to the wealthy.

(From The Yomiuri Shimbun, Oct. 22, 2023)