Table Speech


Major Changes in the Relationship between Companies and Investors

August 23, 2017

Mr. Haruo Nakamura
Deputy President,
Mitsubishi UFJ Morgan Stanley Securities, Ltd.


 The Japanese government revised the “Japan Revitalization Strategy” in 2014 and highlighted the need to enhance corporate governance to make Japanese companies achieve a globally-compatible level in ROE (return on equity). Specific measures included 1) introducing independent outside directors, 2) strengthening constructive engagement with shareholders and 3) promoting termination of cross-sharing arrangements.

 In 2014, the Financial Services Agency initiated and launched the Japanese-version Stewardship Code which set the “Principles for Responsible Institutional Investors” to “promote sustainable growth of the investee company and to enhance the mid- and long-term investment return of clients and beneficiaries”. In 2015, the Corporate Governance Code was stipulated and further set the principles of good practice for listed companies “so as to achieve sustainable growth and increase corporate value over the mid- to long-term”.

 The average ROE of listed companies in Japan remains low at around 6% which is less than half the average of Western companies. Also the Japanese stock markets have been underperforming over the past 20 years compared with Western countries. To improve the situation, the government thinks both companies and investors must make efforts to maximize corporate value through enhancing profitability, ensuring cost-effective and sound management as well as engaging in active dialogues based on profound analyses and strategic advice.

 Recently, we have come to witness some changes in shareholder behavior. Companies with poor business results are held accountable by shareholders and proxy advisory firms and are more likely to have their motions opposed not only by foreign institutional investors but also by Japanese asset management companies, trust banks and life insurance companies. Today, the ratio of foreign-held shares is growing among Japanese listed companies to account for 30%, an increase of 25% over the past 25 years. Some foreign institutional investors are vocal “activists” who pressurize companies for 1) dividend increases or stock buybacks, 2) selling less profitable subsidiary companies or operations, and 3) appointment of Board Directors of their preference. I must say these “outspoken shareholders” are expanding their presence in the Western capital markets.

 Japanese listed companies are expected to create a virtuous cycle by strengthening their competitiveness and earning power to achieve sustainable growth, enhance corporate value and eventually share the profits for the common good. As Japanese companies face increasing scrutiny by shareholders, it is imperative that they engage in constructive dialogues with investors to enhance co-creation that will contribute to mid- and long-term growth. I can say the relationship between companies and investors has entered a new phase.


Where Is People’s Money Going?

August 23, 2017

Mr. Hidetoshi Furukawa
President & CEO, SMBC Trust Bank Ltd.


 I have spent so many years working at different locations leaving my family behind so my personal goal now is to “build a sustainable relationship with my wife”. I currently work in the asset management business for individual clients and meet many “older and wiser” people who give me some tips on happy old age. I learnt the importance of being “moderately fit” and “moderately wealthy” to be able to share “some kind of hobby” with my wife.

 Today, let me give a macroeconomic perspective on household financial assets. According to the “Flow of Funds Accounts Statistics” issued by the Bank of Japan, household financial assets show an astounding growth from 400 trillion yen in 1980 to 1,800 trillion yen in 2016, of which “cash and deposits” account for over 50%, followed by “insurance and pension reserves (30%),” “shares and other equities (10%),” “investment trusts (5%)” and “debt securities (2%)”. In the U.S., “cash and deposits” constitute less than 15% while “shares and other equities” exceed 35%. There is still a wide gap between Japan and the U.S. when it comes to “asset management”.

 As we live and work in an increasingly global environment, we are witnessing a gradual shift “from savings to investments” here in Japan, partly propelled by NISA (Nippon Investment Savings Account) which is a tax exemption program for small investment by individuals.

 Talking about the recent trend of investing in foreign-currency-denominated assets, I think it can be looked at as a possible option for long-term investment. Many people feel uneasy about the exchange-rate fluctuation risk but I think we should take a more holistic view on how our living costs, including food, daily goods and energy, are also affected by exchange rates. When you make overseas traveling a new hobby to be shared with your wife after retirement, you may find your foreign-currency deposits useful to make payments in local currencies. You can also build a happy and sustainable relationship with your wife.

 Talking with my elder clients, I also learnt that many of them wish to “hand down their valuable money to the next generation” for the betterment of society, especially in the fields of art and culture, healthcare, agriculture and IoT to revitalize local communities and enhance growth. I think we need a mechanism to pool financial resources donated by people who want to invest in the brighter future for our country. If the private and public sectors reinforce collaboration to tackle various social issues, I think we can improve the quality of people’s life and make the best use of our social capital. I am convinced that we can achieve a circular society if more people come forward to provide their financial resources to “Social Impact Bond” that can be utilized to boost public services.