(1) Tokyo has the world’s second-largest stock market after NY. But it now has less than 10% of world capitalization, versus a third in 1990. Since then, foreign listings have fallen from 125 to 25, much below foreign listings of 446 in NY, 315 in London, and 150 in Singapore.
(2) Most Japan-focused hedge funds are based outside Japan. Investment banks often conduct Japan-related business in Japan’s neighbors.
(3) Commercial banks continue to lend at very low rates, and cheap credit is the “dead hand” on the capital market. Strong Glass-Steagall-type walls remain betwe!
en commercial and investment banks.
(4) “The country is a regulatory quagmire...Japan requires more paperwork than the rest of Asia put together.”
(5) The Tokyo Stock Exchange lags technologically.
(6) Tokyo doesn’t offer the range of financial products found in London and New York, because markets have only recently been deregulated. Rules governing new products are still unclear.
(7) “A lack of sophistication among market players.”
(8) Japanese language translation costs are high.
(9) “Everybody is absolutely afraid of the Financial Services Agency,” so instead of getting FSA cooperation in compliance, people go around it.
On the positive side, the economy is recovering; outbound M&A is the highest it’s been in years; corporate governance is improving; foreigners hold about 25% of shares; and Citigroup (C) completed the takeover of Nikko Cordial without interference. The biggest problems may be cultural and social. Both NY and London have long histories of welcoming foreigners to do business, and outsiders find it relatively easy to adopt to both business and social norms. Tokyo, with its unique language and culture, can be much tougher, especially for foreign women.