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Managing Japan's Wealth – Opportunities in the Midst of Crisis

4 March 2009

Japan's economy has suffered exceptional damage because of its high level of exposure to the massive downturn in world trade and investment, notably impacting on demand for cars, consumer electronics and investment equipment. The depth of Japan's recession looks set to be far worse than that of the US and the EU.

However, the recession has also radically reshaped the global financial environment in ways that suggest unexpected opportunities for Japanese financial institutions and markets. One example of this has been the acquisition by Nomura of parts of Lehman Brothers' operations. Another is the drop in global interest rates - we are all Japan now.

A new Chatham House report, The Outlook for Tokyo: New Opportunities or Long-term Decline for Japan's Financial Sector? reviews the outlook for Tokyo as a financial centre and the role of Japan's financial sector in the light of domestic targets as well as international trends and competition.

Vanessa Rossi, the report's author, says:

'Japan's financial institutions should look to expand abroad even in the midst of the current exceptional global financial crisis. The Japanese corporate sector succeeded in doing exactly this during past global recessions.'

Tokyo is an important player in the global financial system but it is neither a fully developed global financial centre on a par with New York or London, nor a key hub for emerging Asia like Hong Kong and Singapore. But it has to perform a key role as the intermediary between Japanese savers and the financing needs of the government and corporate sector. To do this, it needs to look for an international solution to the asset class imbalance in Japan's domestic markets.

To ensure that it can continue to perform its intermediary role in the light of the global crisis and expected trends in markets, Japan should carefully appraise its international strategy. Its major financial institutions need to take rapid and strategic action.

NOTES TO EDITORS

Read the report: The Outlook for Tokyo: New Opportunities or Long-term Decline for Japan's Financial Sector?

Vanessa Rossi is a Senior Research Fellow on the International Economics Programme.

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