For Japanese companies and investors, deepening ties with Southeast Asia’s dynamic markets is becoming a necessity rather than a choice. Their goal is to move beyond being just collaborators and establish themselves as integral players in the region’s growth.
In 2024, the stability of Japan’s stock markets, supported by a gradual shift to an inflationary environment and strengthened corporate governance, underscores a significant transformation. The third Japan-Southeast Asia Market Forum held in Singapore on November 19, 2024, brought together prominent industry experts to delve into the sustainability and future potential of these trends.
The event, hosted by the Japan Exchange Group (JPX) and the Japan External Trade Organization (JETRO) in partnership with Nikkei Group Asia, provided valuable insights from reputable speakers as well as networking opportunities for participants.
In his welcome address, Japanese Ambassador to Singapore Hiroshi Ishikawa reaffirmed Japan’s dedication to fostering enduring relationships with Southeast Asian nations.
Amid heightened geopolitical turbulence, ranging from Russia’s aggression in Ukraine and rising conflicts in the Middle East to U.S.-China tensions and China’s economic slowdown, Ishikawa believes Southeast Asia offers promising opportunities, driven by a thriving startup ecosystem and a growing pool of talent.
Japan, he said, has established itself as a vital partner to Southeast Asia in shaping a resilient and forward-looking economic future.
GIC, Singapore’s sovereign wealth fund, has a long history of investing in Japan for over 35 years, with investments in real estate, private equity, public equities, infrastructure, and fixed income. Japan has always been a key market for GIC, given its significant bottom-up opportunities across asset classes.
GIC Chief Investment Officer for Public Equities, Mark Ong, took to the stage to share more about the opportunities and challenges that GIC sees in Japan and the fund’s interest to do more in the market.
Ong said that there are numerous opportunities within Japan’s evolving economy. The ongoing push to improve corporate governance, spearheaded by the Tokyo Stock Exchange, Japan Exchange Group, and Financial Services Agency, is fostering better engagement with companies and enhancing shareholder returns. Green transformation presents another promising avenue as Japan is home to many companies with technologies that contribute to carbon emissions reduction. This presents significant investment opportunities in the green transformation sector for GIC, which is committed to enabling the global transition to net-zero economy through its investments and operations.
The rise of intellectual property in animation and gaming, enhanced by digital distribution, is another area of opportunity in Japan. Finally, technological advancements, particularly in artificial intelligence, offer immense growth potential across various sectors.
Ong also acknowledged that there are challenges in the market, such as a declining labor force and other corporate practices that have impacted the growth and profitability of companies. However, GIC is heartened that corporate Japan has been taking significant steps to increase profitability.
“Globally, we are also facing profound uncertainties in today’s world, including geopolitics, the impact of artificial intelligence, and the climate transition crisis,” he added.
By focusing on long-term business fundamentals, enhancing corporate governance, and embracing technological advancements, GIC remains committed to capturing opportunities in Japan and beyond with its long-term, flexible, and collaborative approach.
Japan is regaining attention as an attractive investment destination for the first time in decades, according to Hiromi Yamaji, the Group CEO of Japan Exchange Group.
Beyond the cash equity market, the monetary policy shift in Japan has invigorated the interest rate market, with steady growth observed in short-term interest rate futures and JGB Futures listed at the exchange. On the commodities front, major players are increasingly participating in Japan’s power electricity futures market, showing potential for growth.
Yamaji attributes Japan’s market momentum to four factors: heightened geopolitical tensions prompting capital allocation to Japan, internal economic shifts, private sector investments, and progress of Japanese companies’ transformation such as Corporate Governance Reform. He believes this momentum stems from deeper structural and cultural transformations, creating optimism for sustained growth.
“The changes that we see are not the result of a single factor but a structural and cultural transformation. So many people think the momentum will continue. There is room for improvement, for sure, and that is precisely the reason it is an attractive investment opportunity,” he said.
Delivering a speech on Japan’s new financial landscape, Jutaro Kaneko, the Deputy Commissioner for International Affairs at Japan’s Financial Services Agency, noted that Japan’s household financial assets are rapidly growing but mostly remain in cash and deposits. To realize a virtuous cycle of economic growth and wealth distribution, households need to shift from savings to investments, and corporations must strategically allocate funds to enhance value.
To encourage investment, the government completely revamped NISA, enhancing tax exemptions on gains and sparking interest among retail investors. It has also established the Japan Financial Literacy and Education Corporation (J-FLEC) to boost financial literacy, while revised principles for customer-oriented business conduct strengthen investor protections. There are also efforts to improve governance, product performance and transparency in asset management firms that further enhance confidence in the market.
“In the context of Japan’s role in Asia, I am proud to announce that the FSA launched the Asia GX Consortium in March to explore effective financial approaches and tools, engaging both private and public stakeholders. I believe that the Asia GX Consortium can serve as an important forum for strong cooperation between ASEAN and Japan,” says Kaneko.
Kenji Teshima, Senior Managing Director of Nomura Holdings, Representative Director and CEO of Nomura Asia Pacific Holdings, shared his view on the opportunities and challenges currently faced by Japan, and how they relate to other markets in Asia.
Speaking at a fireside chat moderated by Jacqueline Yeh, Head of Institutional and International Business at Lion Global Investors, Teshima noted that Japan ― along with India and Southeast Asian markets ― has been one of the beneficiaries of China’s economic slowdown.
Japan, he said, is enjoying an inflow of “redistributed” money that had previously been flowing into China and other Asian markets. This success has been largely due to bold initiatives by the government and the Tokyo Stock Exchange to improve corporate governance and bolster investment in the country.
“The weakening of the yen is also quite helpful for foreign investors. Japan has become a very interesting destination with high liquidity in the market, and now I think it’s attracting investors from all over the world with an increasing number of strategic investments,” Teshima said.
The NISA initiative, he added, has proved to contribute to shoring up the share prices of listed companies. However, an area that would also need attention going forward is the pre-IPO market, which is meager compared to those in the U.S. and even some Asian markets.
“If we can support these startups to grow while they’re still in the immature phase, by the time they’re ready for IPO, they will be unicorns,” he said.
Commenting on the success of Japan’s corporate governance reforms specifically, Teshima said the challenge for many companies in the market will now be to invest in and realize the next growth, rather than just be happy with paying dividends to shareholders.
Trends related to investment in Japanese stocks, particularly among retail investors, have emerged as interesting talking points in the market over the past year or so.
Explaining in more detail, Isaac Lim of trading platform Moomoo, said that retail investors tend to adopt a herd mentality which sees them jump into “hype stocks”, for example.
However, as part of Moomoo’s financial literacy efforts, Lim said he and his team tend to expand investors’ exposure to a broader selection of asset classes, and the Japanese market ― following China’s current slump ― has lately become a popular avenue for that.
“If you want to look at another developed market which has the deep liquidity that is needed and that has been around for quite a long time, aside from the U.S., I think the very clear answer is Japan,” he said.
For Japan, maintaining and growing such investment appeal will be determined by inflation levels.
According to Yasuhiko Kawakita of Mizuho Securities, Japan finds itself in a unique position with regard to the impact of inflation.
While countries around the world are trying to figure out how to manage inflation, Japan ― having endured long-standing deflation ― hopes that the current moderate inflation is stable and will create a cycle of consistent nominal GDP growth in the years ahead.
Kawakita points out Japan’s recent wage increases as a potential indicator of this trend.
“Based on our observations, I am pretty confident that the wage increases we are witnessing are stable and will create a virtuous cycle of sustained inflationary growth, which Japan has hoped for a long time,” he said.
Asked about geopolitics and particularly the U.S. presidential change, the panelists agreed that it is something that could have a potential impact on businesses in other markets.
However, Temasek’s Michael Buchanan believes that companies would be best advised to take a “scenario-based approach” to the developments in the U.S.
“You want to build a resilient portfolio that can do well, or at least avoid pitfalls in a number of scenarios that could hit us, both in terms of geopolitics, in terms of trade policy and popularism,” he said.
In a session about the development of the startup space, Kazuya Nakajo, the Executive Vice President of Japan External Trade Organization, said that last year, Japan experienced an 8% decline in startup investments from the previous year.
He said the drop could be seen as mild compared to the sharp drop in funding seen in the U.S. and Europe.
“The reason why I’m optimistic about the Japanese startup development is that the environment of the Japanese startup scene has been improving,” Nakajo said.
Key factors driving this optimism include improvements in Japan’s labor market, where increasing liquidity and mobility of the job market are enabling startups to attract and retain top talent more effectively than before. Additionally, the number of university-born startups has increased by about 2.5 times over the past decade, indicating that there is a movement towards social implementation beyond the university research level.
Funding dynamics have also transformed over the past two decades. Equity and debt financing have become common practices, signaling a shift away from traditional financial customs. Furthermore, government initiatives to provide financial support have bolstered the sector, offering startups greater access to capital.
In a discussion about cross-border opportunities for startups, Fujiko Amano of Japan’s Economy Ministry underscored Japan’s position as Asia’s top destination for foreign direct investment (FDI), leveraging its stable economy, trusted free-market principles, and cutting-edge innovation ecosystem.
To attract more FDI, Japan has introduced an “Action Plan for Attracting Human and Financial Resources from Overseas,” targeting a nearly twofold increase in FDI stock to 100 trillion yen by 2030. This year, the government looks to further leverage the growing FDI interest in Japan and has adopted the so-called “Priority Program for Attracting Foreign Direct Investment”.
“We are now focusing on eight measures under three pillars, namely, attracting highly skilled talents, enhancing cross-border collaborations and partnerships, and improving administrative procedures,” she said.
On the matter of talent, Davy Lassagne of massive Internet of Things (IoT) data service provider and integrator UnaBiz said the only pain point his company has experienced in Japan is related to English language proficiency.
“If you’ve got a pool of 100 candidates, maybe 10 will speak business English. Out of those 10, 9.5% will want to work for large Japanese institutions that will send them abroad. So you are left with the 0.5% and of those, they need to be willing to work for a startup, and we need to have the budget for that,” says Lassagne.
However, he testified that Japan’s coordinated work across governmental institutions, large corporations, and investors to boost its FDI appeal has been “like no other” in the world. In fact, UnaBiz considers itself one of the major beneficiaries of Japan’s improved approach towards FDI. So much so, that Japan now represents 30% of global sales for the company, which has a presence in 70+ countries through its global 0G Network.
POPS Worldwide, a Vietnam-based digital entertainment company, engages in cross-border business in a slightly different way. The company has been taking IP (intellectual property) from certain markets and delivering them to audiences in different parts of the world.
In Japan, the company has managed to deliver highly popular anime content to Southeast Asia and beyond. Such a feat has been enabled by the abundant free flow of information, which has prompted many young startups to tap overseas markets.
“When they are doing their product development, or when they’re looking at their consumer or their markets, now they’re thinking bigger, and they’re thinking beyond just their local market. And we’re seeing a lot of that,” says POPS Worldwide CEO Esther Nguyen.
To facilitate more startups exploring opportunities in the Japanese market with the hope of eventually listing on the country’s bourse, the Tokyo Stock Exchange earlier this year established the “TSE Asia Startup Hub”.
Kazuhiko Yoshimatsu of the Tokyo Stock Exchange’s Singapore branch, said the program looks to provide opportunities for startups in Asia and the TSE to work together and mutually benefit one another.
“Japan has the capital, knowledge, and the market momentum, while Asian startups have the technology and talent pool. Therefore, we can support each other, and together we can create very good businesses” he said.
One of Japan’s conglomerates to have tapped the Southeast Asian market is MUFG, whose banking subsidiary has expanded its presence in the region through M&As and partnerships.
Tomoharu Hayashi, Managing Director of the Strategic Planning Department at MUFG Bank’s Global Commercial Banking (GCB) Planning Division, shared with the audience some of his team’s initiatives that have helped it contribute 14% to the bank’s operating profit from zero just 12 years ago.
The success of MUFG’s GCB has been driven by its development of a commercial banking platform in Southeast Asian countries. This was initiated in 2013 when it invested in Vietnam’s VietinBank, followed by investments in Krungsri in Thailand and Security Bank in the Philippines, as well as Bank Danamon in Indonesia.
On top of that, MUFG Bank has made investments in the digital space as well, backing startups like Akulaku and Home Credit. The next step is to develop its own ecosystem within its digital platform in an initiative it calls MUFG Openly-connected Digital Ecosystem (MODE).
“At the early stage of the MODE initiative, we promoted collaboration and provided support within MUFG. As a next step, we expanded it to non-MUFG investees, creating an inclusive platform that includes tech companies outside MUFG,” Hayashi said.
Another MUFG Bank executive, Mamoru Kamemoto, who is Head of the bank’s Business Co-creation Division, later talked about how his team is also making strides to contribute to the group’s growth.
The Business Co-creation Division, which aims to create new industries and businesses together with partners and Japanese corporate clients through investment, acceleration, and open innovation, has a portfolio whose collective value currently stands at about $250 million and aims for further expansion.
“We are expanding our global financial groups’ role in driving innovation and social industrial development for a brighter future,” Kamemoto said.
In the final session of the day, Masanori Yoshida, Executive Officer and Global Chief of Japan Exchange Group, sat down with Nobu Okada, founder & CEO of TSE-listed Astroscale, to talk about the space sustainability company’s journey.
Founded in 2013, Astroscale provides innovative satellite servicing solutions that help satellite operators reduce risks, increase returns, and achieve mission success while fostering a sustainable space environment.
The company is headquartered in Tokyo but has offices in the U.K., the U.S., France, and Israel to meet the growing demand for its services. Now Astroscale employs more than 600 people across its locations.
Okada said the unique global strategy the company has adopted from inception helped it catch the attention of investors, raising as much as $7.7 million in Series A funding.
“Typically, startups start with one country, and then if they make money, they move to a new one. We didn’t choose that way. We set up our facilities globally which is extremely capex-intensive. However, investors appreciated this strategy, as this was the only way to solve this [space sustainability] issue,” he said.
As alluded to by Yoshida, Okada started his career in the public sector before jumping into the realm of entrepreneurship. The founder said his previous experience has helped him build a perspective of societal impact, which he refers to as “public spirit”, that is increasingly becoming relevant in today’s private sector, describing it as a key factor that can drive team morale, sales, and fundraising.
“I would say that regardless of where we are, we can make an impact and that is the positive side of the current nature of business globally. Having that public mindset and public spirit is now a key differentiator,” he said.
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