Faced with growing competition from Hong Kong and Singapore, Japan aims to reinvigorate Tokyo as a global financial hub with a lofty goal of developing a new foreigner-friendly high-rise banking district.
The idea has raised eyebrows among foreign fund managers in the region whose biggest complaint about Tokyo is often not the lack of a decent office or apartment but high taxes and strict regulations.
Yuji Yamamoto, the minister for financial services, recently unveiled a plan for Tokyo's version of Canary Wharf, a skyscraper banking district in once-derelict London docklands.
High-rise offices with 24-hour access and onsite health clubs would be developed along with housing complexes to encourage foreign banks to cluster in the area in the capital around the Tokyo Stock Exchange and Bank of Japan.
Yamamoto did not say whether Japan would tackle high taxes and red tape, common complaints about Tokyo from fund managers, many of whom opt to work in Singapore or Hong Kong even if they manage Japanese stocks.
"Building buildings doesn't create a financial system," said one fund manager based in Singapore who asked not to be named.
"Japan has an unfavorable tax regime both for financial products and the individual. The overall operating environment in Japan is unfavorable because there is a deep suspicion of capitalism," he said.
Japan's government, concerned Tokyo has been losing business to rival financial centers such as Hong Kong and Singapore, has set up two expert committees to look at ways to boost financial competitiveness.
"Market share losses to London, Hong Kong, and Singapore have created a sense of crisis," Robert Feldman, a managing director and economist at Morgan Stanley, wrote in a report in February.
He said foreign managers in Tokyo often bemoan the lack of staff who are fluent in English.
Other frequent complaints include the length of time it takes to travel from Tokyo's Narita airport to the city center and the firewall in Japan that means corporate and investment banking operations must be separated.
"There are still many many regulations which are a big problem," said Martin Schulz, a research fellow at the Fujitsu Research Institute.
He said firms were increasingly looking to integrate their banking and brokerage business which is not yet possible in Japan.
Britain's "Big Bang" overhaul of its financial regulations two decades ago and its pool of English-speaking workers helped to make London Europe's top financial center ahead of Frankfurt, Germany.
The head of the Tokyo Stock Exchange, Taizo Nishimuro, also warned that the plan for a new district for foreign banks will not be enough on its own to boost Japan's financial competitiveness.
"We cannot wait until the time when those high-rise buildings are to be built before the Tokyo financial market gets bigger and greater," he told reporters recently, noting such "hindrances" as regulations and high taxation.
But experts say major foreign banks look set to stay in Tokyo, hoping to benefit from a pick-up in demand for stocks from Japanese individuals and investment banking opportunities with local players.
US giant Citigroup last month secured a takeover offer of the scandal-hit Japanese securities firm Nikko Cordial for US$7.7 billion as hostility to takeovers by foreign companies gradually abates.
And with the Japanese economy recovering from its long slump, Tokyo looks set to remain "a very big market which cannot be ignored by the bigger players," Schulz said.
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