- The Japanese government is looking to attract overseas financial institutions to set up their regional headquarters in the country
- Regional cities have been aiming to become a hub for these institutions, with Fukuoka the frontrunner
- Incentives have been implemented, but a greater investment focus could help more companies flourish
Japan is seeking to lure more overseas financial institutions to set up business in the country, and focusing on locations away from its megacities.
The majority of Japanese institutions are based in Tokyo and Osaka, and both are on the east coast of the island of Honshu. With an awareness of the risks of natural disasters, some companies are cautious about concentrating operations in one area, and are looking to move their secondary and back-up offices further away from the area.
Kyoya Okazawa, international financial city ambassador for Fukuoka and CEO at Stok Corporation, says the Japanese government tasked its key cities with finding ways to attract more overseas financial institutions, recognising that many had moved their Asia-Pacific headquarters from Tokyo to other Asian cities, including Hong Kong and Singapore.
Fukuoka, Japan’s sixth largest city, with a population of 1.6 million people and the de facto capital of the island of Kyushu, has been promoted as a possible alternative to Tokyo and Osaka.
Fukuoka put itself forward as a candidate city to attract more overseas financial institutions. In return, the city was made into a special economic zone for the establishment of foreign businesses, and has been designated a start-up city.
The city already boasts strong economic figures. “The gross domestic product (GDP) of the Kyushu region is around Y50tn [$343.4bn], around 10% of Japan’s overall GDP,” says Mr Okazawa. “The GDP of Kyushu is comparable to that of Denmark and Austria. Businesses are learning the hidden value of the city.”
Fukuoka is looking to additional growth streams, with banking and investment presenting an opportunity. “The Japanese economy is still very supported by the traditional banking system, but the biggest growth we see now comes from the fintechs in places like Hong Kong. To support these companies in Japan, there needs to be more asset managers and foreign institutions,” Mr Okazawa says.
The end goal is for the city to replicate what has been seen overseas. “From living in New York and London, I saw how Silicon Valley developed,” Mr Ozakawa says. “While Tokyo and Osaka are comparable to New York and Washington DC, Fukuoka is like Los Angeles or Seattle. We try to provide a more diversified economic system to provide a diversified experience.”
International presence
A number of companies have established a presence in Fukuoka, including Singaporean private capital firm CapBridge, Hong Kong-based investment management firm MCP Holdings, EY and Boston Consulting Group.
State Street moved its back-up office to Fukuoka because the company realised it was too concentrated on Honshu, with its main office in Tokyo and back-up in Osaka.
Alison Birch, head of Japan at State Street Trust and Banking Co, Fukuoka office, says: “After opening the second office we realised it gave us access to incredible talent. Fukuoka has access to graduates from both domestic and international universities. As a global firm we require people who can speak two languages, which we can often find among graduates here.”
A growing talent pool can only benefit the companies based there, Ms Birch adds: “We see other financial services companies opening up offices here, and we’re happy about this as it expands the potential talent pool. This, in turn, brings in more companies. It becomes a virtuous circle.”
This extends beyond traditional banking. “We are always looking forward, and are interested in attracting more fintechs. They have more mobility as institutions, and can base themselves in the less expensive cities,” Mr Okazawa says.
Japan’s fintech sector is lagging behind its regional counterparts, as seen in its mobile payments use falling behind that recorded in China and South Korea. While all forms of cashless payments, including cards, mobile and QR codes, accounted for 36% of all payments made in 2022 according to Bank of Japan figures, research from GlobalData found that in 2022, 72% of Chinese consumers had made a mobile payment in the previous month.
For the companies that are looking to grow, there is a focus on trying to increase the amount of investors who are looking at Japan as a potential market for opportunities. “We try to attract asset managers who can supply venture capital to start-up companies,” Mr Okazawa says. “Many Asia-Pacific companies will focus on the US and China in allocating funds, and Japan is a missing piece in the puzzle. Fukuoka is really the start-up city, which appeals to the private equity firms and asset managers. Traditional institutions are always welcome, but the demand here is different.”
Government support
The goal is to entice more companies and international employees to work in Fukuoka, but further steps are needed to achieve this.
“We have established a department to work through the regulatory issues in opening in Fukuoka, and helping employees with obtaining working visas,” Mr Okazawa says.
The city has implemented incentives to attract overseas businesses, such as providing subsidies for hiring staff, the cost of office space rental to up to Y15m per year and the cost of incorporating a business to up to Y3m.
There are ambitions for greater measures to be taken. “We want more deregulation in visa applications and more preferential tax rules, but we cannot control this,” Mr Okazawa adds.
Investors outside the financial services space also have a number of industries available to them. The city has a strong focus on climate tech, and the city boasts an energy supply of 60% clean energy, compared with Tokyo’s 20%.
“We are setting up a fund to invest in agriculture for food security reasons. Kyushu and Hokkaido are major food suppliers domestically and for exports. These agricultural companies need investment to grow. There are lots of investment opportunities in this space,” Mr Okazawa says.
“There are few real investment opportunities to be found in Osaka and Tokyo because most industries are based outside these areas. Taiwan Semiconductor Manufacturing Company has announced it is to build two factories in Kumamoto. There are other semiconductor companies in Kyushu, but they are looking for investors.”