Demand (C,I,G,EX) → GDP ← Supply (labor, capital, productivity) Lack of demand was behind the prolonged deflation in Japan. Quantitative expansion and inflation targeting was effective to stop deflation. GDP, labor market condition, and corporate profit showed dramatic recovery.
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Demand (C,I,G,EX) GDP Supply (labor, capital, productivity) · 2019-05-29 · Demand (C,I,G,EX) →GDP ← Supply (labor, capital, productivity) Lack of demand was behind the prolonged
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Demand (C,I,G,EX) → GDP ← Supply (labor, capital, productivity)
Lack of demand was behind the prolonged deflation in Japan.
Quantitative expansion and inflation targeting was effective to stop deflation.
GDP, labor market condition, and corporate profit showed dramatic recovery.
Nominal GDP, Japan, 1990-2018: It took about 20 years to recover
(Trillion Yen)
(Source) Cabinet Office,Government of Japan, Quarterly Estimates of GDP - Release Archive - 2018 > Oct.-Dec. 2018 (The 1st preliminary),1990-1993:National Accounts of 2009
Hours worked Total factor productivity Capital stock Number of employed Potential growth rate
(FY)
(y/y % chg.)
(Source)https://www.boj.or.jp/research/research_data/gap/index.htm/Note: The potential growh rate id estimated by the Research and Statistics Department , Bank of Japan.
Achieve a primary surplus of the national and local governments
Fiscal consolidation target
Mechanisms to integrate fiscal consolidation target and annual budget
formulation for FY2019 to FY2021
Measures to realize the plan
Social security
Expenditure
The progress will be reviewed at the midpoint of the new Plan, or FY2021; thereafter the outcome
will be reflected in the subsequent reforms of expenditures and revenues towards the achievement of a
primary surplus by FY2025.
【Benchmarks for managing the progress】・Primary deficit to GDP ratio:around 1.5% ・Public debt to GDP ratio:in the low 180%-range
・Fiscal deficit to GDP ratio:at 3% or below
Non-Social security
Expenditure
Contain the increase within the one corresponding to the increase due to population
aging
Expenditures of the
local government
Steadily reduce the public debt to GDP ratio
Continue the efforts of expenditure reforms thus far in the Abe Cabinet
The total amount of the general revenue shall be maintained substantially at the same
level as in the FY2018 Fiscal Plan of Local Governments, and not below
Main points of the New Plan to Advance Economic and Fiscal Revitalization
(Cabinet Decision on 15 June 2018)
2
Highlights of the Draft FY2019 Budget (1/2)
Shifting toward “Social security that accommodates the needs of all generations”, implementfree early childhood education and enhancement of social security system funded by therevenue raised by the consumption tax hike
Public spending (PS) : +\811.0bn (National government spending (NGS) : +\715.7bn*1 )
• Free Early Childhood Education and Childcare [Starting from Oct.2019] …… PS : +\388.2bn (NGS : +\388.2bn*2)
• Improvement of working condition for long-term care workers [Starting from Oct.2019] ……………… PS : +\ 42.1bn(NGS : +\ 21.3bn)
• Provision of benefits for supporting low-income pensioners ……………… PS : +\185.9bn (NGS : +\185.9bn)
• Further burden reduction of long-term care insurance contributions for the low-income elderly …… PS : +\ 65.4bn(NGS : +\ 32.7bn), etc.
*1,2 These amounts include temporary grants for children and child-rearing (assumed name) amount to \234.9bn along with making whole expenses for the first year of free early childhood education and childcare to be national spending. The amount of increase in social security expenditure for enhancement of social security system excluding the grants is +\480.8bn for public spending, +\153.2bn for national government spending.
Mobilize a range of measures to level the impact on the economy of the consumption tax hike“Temporal and Special Measures” : \2,028.0bn (NGS)
• Point Rewards to Consumers via Small and Medium-sized Retail Businesses, etc. ………………… \ 279.8bn
• Vouchers with premiums for the Low-income or Child-rearing Households ………………………… \ 172.3bn
• Budgetary Measures for Housing Purchaser - Benefits for Housing Purchase “Sumai Kyu-fu kin” ……. \ 78.5bn- Point Reward System for Promoting Innovative Housing …. \ 130.0bn
• Measures for Disaster Prevention, Disaster Mitigation and Building National Resilience ………… \1,347.5bn, etc.
3
Highlights of the Draft FY2019 Budget (2/2)
《Fiscal Consolidation》
Based on “Three-year Emergency Response Plan for Disaster Prevention, Disaster Mitigation,and Building National Resilience”, reflecting “Emergency Inspection of Critical Infrastructure”,etc., implement 160 urgent measures intensively for 3 years until FY2020.
⇒ Utilize FY2019/FY2020 Temporal and Special Measures (FY2019 : 1,347.5bn*3) and the Second Supplementary Budget for FY2018
*3 National Government Spending. The whole spending, including the Second Supplementary Budget for FY2018, amounts to \2.4tn.
By contrast, the size of the projects for 3 years until FY2020 amounts to approx. \7.0tn.
Under “New Plan to Advance Economic and Fiscal revitalization”, continue efforts for expenditure reforms.
• Social Security Expenditures: achieved the principle of suppressing the increase due to aging population (+\477.4bn)
• Non-social security Expenditures: continue efforts for expenditure reforms (+\33.0bn)
The amount of planned bond issuance has decreased in 7 consecutive years since the start of Abe administration. (FY2018:\33.7tn ⇒ FY2019:\32.7tn [\31.9tn])
Primary balance in the general account has improved. (FY2018: -\10.4tn ⇒ FY2019: -\9.2tn [-\8.4tn])
※ [ ] shows the amount excluding the amount of “Temporal and Special Measures”.
4
Impact of the consumption tax hike
Economic impact of this consumption tax hike is estimated to be approx. \2.0tn, suppressedby mitigating measures such as free early childhood education, etc. New measures, amountingto approx. \2.3tn, are prepared enough to overcome this adverse impact.
Impact of the consumption tax hikeBurden
Increase
Burden
Decrease
Increased Burden due to the consumption tax hike as revenue sources
for national and local governments : +\5.7tn (+\2.87tn per 1%) Approx.
\5.7tnー
Implementation of reduced tax rate ー Approx. \1.1tn
Securement of fiscal resources by revision of tobacco and income tax
last year, etc. Approx.
\0.6tnー
Approx.\5.2tn
Increased
Burden
Free Early Childhood Education, Enhancement of Social Security SystemBenefit
Increase
The implementation of Free Early Childhood Education and Childcare from Oct.1, 2019
Provision of benefits for supporting low-income pensioners, etc.Approx. \2.8tn
The compensation to medical fees for increased consumption tax burden, etc. Approx. \0.4tn
Approx. \3.2tn
Benefit
Increase
New measures to address the consumption tax hike Budget size, etc.
Temporal and Special budget measures (Point Rewards, Vouchers with premiums, Benefits for
Housing Purchase “Sumai Kyu-fu kin”, Point Reward System for Promoting Innovative Housing, and Measures
for Disaster Prevention, Disaster Mitigation and Building National Resilience, etc.)
Approx. \2.0tn(National government
spending)
Tax credit (Expansion of housing loan tax credit, Reduction of tax burden on purchase and possession of
〈Breakdown by Financing Methods〉〈Breakdown by Legal Grounds〉 〈Market Issuance Plan by JGB types〉
=
(trillion yen) (trillion yen) (trillion yen)
※ Non-Price Competitive Auction Ⅱ is an additional issuance for the JGB Market Special Participants after the normal auction.
Additional revenue from issuance at a price above par value is also included.
- Market issuance amount by normal auctions : 129.4 trillion yen
(reduced by 4.8 trillion yen in total)
- Issuance amounts by maturity types will be reduced in each zone of super-long-
term, long-term and short- to medium-term in a well-balanced manner, based on
the market needs.
- Issuance through liquidity enhancement auctions (additional issuance of off-the-
run JGBs based on market demand) will remain at the current amount, considering
the market circumstances.
6
Changes from
FY2018(initial)
Newly-issued bonds
(Construction bonds and
special deficit-financing bonds)
Reconstruction bonds 0.9 -0.0
FILP bonds 12.0 -
Refunding bonds 103.1 -0.1
Total 148.7 -1.2
FY2019
32.7 -1.0
Changes fromFY2018(initial)
141.8 -2.3
4.7 1.4
2.2 -0.3
148.7 -1.2
FY2019
BOJ rollover
JGB market issuance
Market issuance bynormal auctions -4.8
Non-price competitiveauction Ⅱ and others 12.4 2.5
Sales for households
129.4
Total
Could Japan Achieve Super Smart Society ?
Japan Securities Summit4 March 2019
Naoko NemotoFinancial EconomistAsian Development Bank Institute
Outlook for Japan’s Economy: Solid capital investment and labor income will sustain growth
2 Source:ADB Asian Development Outlook
Supplement Dec 2018
60
70
80
90
100
110
0
5
10
15
20
25
30
Corporate Profits and Investments
Pretax profit (Trillion yen, left axis)
Capital investment (Trillion yen, right axis)
Source: Cabinet Office Quarterly GDP Estimates
2018, Ministry of Finance Financial Statements
Statistics of Corporations by Industry 2018
Productivity Improvement Key AmidDeclining Population
3Source: Ministry of Internal Affairs and Communications Labor Force Survey 2019
62
63
64
65
66
67
68
2.0
3.0
4.0
5.0
6.0
(Mil. ppl.)(%)Unemployment Rate and the Number of Employed
Unemployment rate Employed (Seasonally adjusted)
Public-Private Cooperation to Advance “Future Growth Plan and Society 5.0”
4
“ Society 5.0” is Aligned with Sustainable Development Goals( SDGs)
5
Source: Federation of Economic Organization
• Japan Future Strategy June 2018 Cabinet Office
August 2018, Ministry of
Economy, Trade and Industry
December 2018, METI
January 2019 Prime Minister
Shinzo Abe
• New era of automobiles
• 80% reduction of GHG
emissions per vehicle
• Published guidance paper with
Task Force on Climate-
Related Financial Disclosure
• Financial Services Agency
supports disclosure
• Aim to reduce hydrogen
production costs by at least
90% by 2050
ESG Investment to Boost Investment Chain, Japan’s Growth Strategy
6
Corporate
Improvement of Corporate Value
Boost Japan’s Potential Growth
Investors
Asset Management Co.
• GPIF*
• Pension fund
• Insurance
• Foreign Investors
• Individuals
Stewardship
Code
Corporate
Governance
Code
High
Returns
Government Pension Investment Fund (GPIF) has integrated ESG factors into the investment process via 1) investment principles, 2)
stewardship principles, and 3) proxy voting principles. GPIF also solicitated ESG indices(e.g. FTSE Blossom Japan Index, S&P/JPX
Carbon Efficient Index Series, MSCI Japan Empowering Women index)
HR Development and Diversity: Smart Society Pillar
7
44
April 2016
• Act on promotion on women’s participation and advancement in the workplace
• Set a goal of increasing women in leadership positions to 30% by 2020
April 2019
• Reform of labor law
• Focus on work style reform (i.e. reduction of overtime work)
April 2019
• Reform of immigration and refugee recognition law to expand foreign workers
• Set up new status of residence
Non-Routine
Routine
Manual Cognitive
Source: Mitsubishi Research Institute (June, 2018)
Share of Labor Force by Type of Work
March 4, 2019
Makoto Sonoda
Director for International Capital Market RegulationDirector for International Accounting
Member of G20 Office
Financial Services Agency
Government of Japan
Japan’s developmentsto attract people and industry
*Any views expressed in this presentation are those of the presenter and are not necessarily the official views of the FSA.
1
Main Topics
Corporate Governance Reform in Japan-highest profile issue under Abenomics-
FSA’s recent developments to attract investors
G20 priorities under Japanese presidency
2
Corporate Governance Reform in Japan-highest profile issue under Abenomics-
3
Current Status of Abenomics
(Source) Prime Minister of Japan and his cabinet Website
Address by Prime Minister Shinzo Abe at NYSE(Sept. 20, 2017)
4
“First of all, we have to change Japan’s corporate culture. Iplace the greatest emphasis on reforms to corporategovernance.
Two years ago, we drew up a corporate governance code.This resulted in the percentage of listed companies withtwo or more independent outside directors rising to 88percent now, up from a mere 17 percent five years ago.”
We will press forward further with corporate governancereforms so that corporations take management decisionsdecisively, with an awareness of the cost of capital.”
(Source) The Website of the Prime Minister and his Cabinet
Opening Address of Chairman Hiroaki Nakanishi, Keidanrenat the Symposium “Toward Realization of Effective Corporate Governance” hosted
by Keidanren (Nov. 12, 2018)
Promotion of Corporate Governance by the Initiatives of the Business Community
“Corporate governance reform among companies should now be implemented by the initiatives of their top management, and corporate governance should be established not merely in form but in effect as well.”
5
0
1
2
3
4
-4% 0% 4% 8% 12% 16%
6
Enhancing Capital Efficiency through Corporate Governance Reform
It is important to enhance productivity and profitability by strengthening corporate governance, etc. in order to maintain the sustainable growth of companies.
The ROE and PBR of companies are increasing as a whole through the progress of corporate governance reform.
0
1
2
3
4
-4% 0% 4% 8% 12% 16%
2014PBR1.4ROE9.7%
2018年PBR1.6ROE11.5%※MedianPBR
ROE
(Source)Edited by FSA from Bloomberg Data:, JPX Nikkei 400 Companies
7
③Audit quality enhancement
Comprehensive Reform of Japan’s Capital Market
Companies
Capital Market
Asset OwnersHousehold
(Asset Managers)Customer-oriented Asset
Management(High quality products &
services)
Diversified & installment investment for long term
②Corporate disclosure reform
The Stewardship Code and the Corporate Governance Code work in tandem for long-term growthin corporate value
Reform of corporate disclosure to support investment judgement and encourage constructive dialogue
The percentage of companies with two or more independent directors have substantially increased to 91.3% of the 1st Section listed companies as of July 2018, and 97.7% of JPX Nikkei 400 companies.
Companies with two or more independent directors
(Source)Tokyo Stock Exchange
JPX Nikkei400
Companies with one third or more independent directors
6.4%12.2%
22.7%27.2%
33.6%40.6%
0%
10%
20%
30%
40%
50%
2014年 2015年 2016年 2017年 2018年 2018年
市場第一部 JPX日経
400
JPX Nikkei400
The percentage of companies with one third or more independent directors have increased to 33.6 of the 1st Section listed companies as of July 2018, and 40.6% of JPX Nikkei 400 companies.
TSE 1st Section
TSE 1st Section
10
The number of female executives has increased to over 1,700, which is nearly 3 times the number 5 years ago. Currently, they account for 4% of all executives of all listed companies.
Trend in the Number of Female Executives at listed companies
(Source)Toyo Keizai Shinpo-sha, “Executives” include directors, statutory auditors and executive officers.
I-1 (2) :Diversity of the Board
Number
Percentage
Number of female
executives
%
11
(Source) Questionnaire Survey Results(2018) of Egon Zehnder
I-1 (3): Appointment/Dismissal Policy of CEO
The percentage of companies for whom the Appointment Policy and Dismissal Policy are “Under Preparation” increased drastically.
The percentage of companies with “No Plan” and no reply reduced substantially.
Ratio(%)
Ratio(%)
12
The percentage of companies with Nomination Committees increased from 11% in 2015 to 34% in 2018.
【 Ratio of 1st Section Companies with Nomination Committees】
【 Ratio of the 1st Section Companies with Remuneration Committees】
I-1 (4): Nomination/Remuneration Committees
The percentage of companies with Remuneration Committees increased from 13% in 2015 to 38% in 2018.
Source: Tokyo Stock Exchange
【Trend in the Percentage of Outside Directors in Nomination Committees】
Voluntary
Legally required
Voluntary
JPX Nikkei 400
Outside Director: Majority
Outside Director: Majority
<Composition of Outside Directors>
All ≧2/3 2/3>X>1/2 1/2≧X≧1/3 1/3>
Source: Tokyo Stock Exchange13
I-1 (5): Effectiveness of Nomination Committees
For around 50% of voluntary Nomination Committees, outside directors account for the majority of members.
Legally required1st Section,
Tokyo Stock Exchange
14
Half of the chairman of nomination committees are independent outside directors.
(Source) Survey results in 2018 by Egon Zehnder
I-1 (6): Chairmen of Nomination Committees
15
I-1 (7): Ratio of Companies with ROE as Management Plan Target
37.7%
41.6%
56.5%58.9%
63.3%
30%
40%
50%
60%
70%
2013 2014 2015 2016 2017
(Source) Survey results of the Life Insurance Association of Japan
Ratio(%)
16
3.7
1.2
3.4
5.7
0
2
4
6
8
10
12
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
上場銀行
損害保険会社
生命保険会社
上場事業法人
(%)
(Source)J-IRIS Research
38.037.1
36.1 35.734.3 34.4
33.432.1
31.2
39.1 39.8 40.3 40.7
44.345.6
46.7
49.551.3
22.8 23.1 23.6 23.6
21.419.9 19.9
18.3 17.515
20
25
30
35
40
45
50
55
2009 2010 2011 2012 2013 2014 2015 2016 2017
安定株主
機関投資家
個人その他
(%)
I-2 (1): Trend for Cross-shareholdings
Shareholder composition of listed companies at Nikkei 225 (Ratio of No. of voting rights)
Ratio of shareholdings by shareholder category (market value basis)
Although the ratio of cross-shareholding shares among voting right shares isdecreasing, it has been pointed out that cross-shareholdings between non-financialcompanies have not been significantly reduced and are still at a considerably high level.
(Source)Nomura Securities
Stable Shareholders
Institutional investors
Individuals and others
Number of companies in which cross-shares are held. Total amount of cross-held shares on the balance sheet
At present
I-2 (2): Plans to revise disclosure of cross-shareholdings (provisional)
30 companies each for current year and preceding year
Changes after revision(tentative)(shown in red characters)
Policy of cross-share holdings, process to verify their rationale for holding them
Total amount of shares for pure investment purpose on the balance sheet, received dividend, profit/loss from disposition of such shares, total amount of market values
Definition of cross-held shares and shares for pure investment purpose
Increase/decrease of number of shares, total amount and reason of increase
Number of companies in which cross-shares are held. Total amount of cross-held shares on the balance sheet
Number of companies held for pure investment purpose. Total amount of shares for pure investment purpose on the balance sheet, received dividend, profit/loss from disposition of such shares, total amount of market value
Company SharesB/S
AmountObjective
of holdings
A xxx,xxx xxx,xxx ・・・・・
B xxx,xxx xxx,xxx ・・・・・
・・・
30com
pan
ies Company
(This year)Shares
B/S Amount
(Last year)Shares
B/S Amount
Objective of holdingsBenefit of holdings
Shares held by counterpartiesReason for increase
Axxx,xxxxxx,xxx
xxx,xxxxxx,xxx
・・・・・・・・・・・・・・・・・・・・・・
Bxxx,xxxxxx,xxx
xxx,xxxxxx,xxx
・・・・・・・・・・・・・・・・・・・・・・
60com
pan
ies
・・・
(Last year)
30 companies each for current year and preceding yearCompany Shares
B/SAmount
Objective of
holdings
A xxx,xxx xxx,xxx ・・・・・
B xxx,xxx xxx,xxx ・・・・・・・・
30com
pan
ies
(This year)
17
Constructive Dialogue
Stewardship Code Corporate Governance Code
・Introduced in Feb. 2014・Revised in May 2017(Asset Owners, Conflicts of interest, Collective Engagement)
Guidance 3-3
When investors monitor investee
companies, a variety of factors may be
considered as relevant. Factors may
include (….), including risks and
opportunity arising from social and
environmental matters(….).
I-3:Corporate Governance Reform and ESG issues
Investors Companies
Investment
Returns
・Introduced in June 2015・Revised in June 2018(Nomination Process of CEO, Gender, International Experience, Cross-shareholdings, etc.)
General Principle 3 [Notes]
(….) non-financial information, such as (….), social and environmental matters(ESG factors) is often boiler-plate.
18
18
86
49
80
個別(理由有り) 個別(理由無し)集計 無し・不明
19
Disclosure of Proxy Voting Results
(Source) by FSA as of Oct. 2018
Over 100 institutional investors including most major domestic investors disclosevoting results of AGM by individual company/agenda basis. Some of them alsodisclose the reasons of “Against” votes.
Reasons of Voting
Investor X
Investor Y
Detailed Descriptione
a
b
c
d
f
II-1 (1): Voting Result Disclosure
Results by agendaCumulating results
Results by agenda + ReasonsNA
II-1 (2): Voting “Against” Policy by investors and voting agencies
(Source) Compiled from the information of each company website by FSA, as of June, 2018 AGM
Mitsubishi UFJ Trust JP Morgan Asset ISS
Number of Outside Directors
・2 or more outside directors are NOT elected・Against all directors
・1/3 or more outside directors are NOT elected ・Against CEO
・2 or more outside directors are NOT elected<On or after Feb. 2019> 1/3 or more outside directors are NOT elected・Against top management(Companies with Kansayaku Board)
Capital Policy
・ROE is less than 5% for 5 consecutive years and recovery is not expected.・Against a representative director・Deficit has continued for last 3 consecutive years and recovery is not expected.・Against directors serving the subject period
・Poor business results out of mismanagement(extremely low profitability such as low ROE)・Against a director who is considered responsible.
・ROE is less than 5% for 5 consecutive years and recovery is not expected.・To vote against election of top management
20
II-1 (3): Stewardship Activity Reports by Institutional Investors
21
The quality of disclosure of stewardship activities varies widely by investor. Thereare some investors which disclose examples of actual engagement, while otherinvestors disclose their activities abstractly, or disclose nothing.
Cases of engagement(Industry・Subjects・Results)
Organization of engagement Analysis of
Engagement
Self Assessment
Number of companies and cases of engagement
Name of the companies which were engaged
The subjects of engagement
Overseas Investor A Japanese Investor B
Japanese Investor C
Cases of proxy voting according to engagement
(Provisional Translation by FSA)
The system of stewardship and evaluation of stewardship activities
We contribute to increase of corporate value and sustainable growth of investee companies through exercising voting rights appropriately in accordance with the voting policy of the company.We review our system of stewardship and the results of stewardship activities of the company and believe that such system and the results are appropriate since we conduct stewardship activities in accordance with our stewardship policy.
We will continue to be in charge of stewardship activities primarily through proxy voting.
<End)
22
II-2 (1): Number of signatories of the Stewardship Code
Number of signatories of the Stewardship Code
1 3 6 6 7 7 7 12 1412 16 17 18 19 19 19 19 18
86122 133 141 145 152 153 163 17219
2121 22 22 22 22
22 22
6
67 7 7 7 6
6 6
7
77 7 7 7 7
7 7
0
50
100
150
200
250
300
May Nov. May Nov. May Nov. Dec. Jul. Dec.
Corporate Pension Public PensionInvestment Management InsuranceTrust Bank Others
229214
239
214207201191
175
127
20182015 2016 20172014
23
II-2 (2): Stewardship Activities of GPIF
GPIF (Government Pension Investment Fund, Asset UnderManagement: $1.5 Trillion) accepted the Stewardship Code in 2014and is actively involved in the Stewardship Activities.
• Signed the Principles for ResponsibleInvestment (PRI) in 2015.
• Conducted interviews with all theassigned asset managers on theirstewardship activities since 2016.
• Established “Business and AssetOwners Forum” and “Global AssetOwners Forum” in 2016.
• Established Stewardship Principlesand Proxy Voting Principles in 2017.
• Requested external asset managersfor the disclosure of proxy votingrecords in 2017.
II-2 (3): Stewardship of Corporate Pension Funds and Support of Mother companies
Stewardship Code Corporate Governance Code
Employees(Beneficiaries of pension funds)
Return
Return
Fund
Asset ManagersMonitoring
Mother Companies
Constructive Dialogue
Return
Investment Investment
Corporate Pension Fund
(Asset Owners)
Support of human resources/operations
24
Aioi Nissay Dowa InsuranceEisaiSecomPanasonicMizuho BankMitsui Sumitomo InsuranceNational Construction Association
Passive Investment Ratio of Domestic Equity Investment at Public Pension Funds
Passive Investment Ratio of Domestic Equity Investment at GPIF
(Source) News Letter on Pension & Investment(Note) As of the end of March 2016, the subject funds consist of 9 public
pension funds including GPIF.
(End of the year)
(77%)
(23%) Passive Investment
Active Investment
60%
70%
80%
90%
100%
2005 2007 2009 2011 2013 2015
Reference A. Roles of Passive Fund
Because passive management provides limited options to sell investeecompanies’ shares, institutional investors should actively take charge ofengagement and voting from a medium- to long-term perspective.
(2) Life Insurance Company Consortium for Engagement
Reference B. Collective Engagement by Japanese Investors
・ Sent letters to companies on Material Issues on Sustainability of their Business Models and the Disclosure as a subject for engagement.
・ Sent letter s to companies with corporate scandals regarding their disclosure and engagement.・ Sent letters to companies with AGM agenda which received significant number of “against” votes.・ Sent letters to companies which have takeover defense plans.
Source: The Life Insurance Association of Japan
・ Sent letters to 100 companies asking for improvement of corporate governance/shareholder returns.
27
FSA’s recent developments to attract investors
Joint Consultation Scheme by Tokyo Metropolitan Gov. and the FSA
Foreign Financial business operators can use either/both of the two contact points below
FSA launched the "Financial Market Entry Consultation Desk" to give advice on Japan’sfinancial regulations to foreign financial business operators (e.g. asset managementfirms) which plan to establish a business base in Japan.
As the first case, a UK asset management company, Legal & General Group, consultedthe desk and completed the registration procedure in approximately half the timegenerally taken.
Where are we in the history of the G20?What are the goals of the Japanese presidency?
31
Monitoring and addressing emerging
risks and vulnerabilities
G20’s First Decade
2008:Global Financial Crisis
More capital and liquidity
• Basel 2.5• Basel III• Basel III
finalization
No more “too big to fail”
• SIFI surcharge• TLAC• RRP• Resolution
regimes
OTC derivatives
• Central clearing• Margin
requirements• Trade
repositories• Trading
platforms
Shadow banking
• Securitization
• Repo-market
• MMF
• Banks’ links to shadow banking
2009:The third G20 Leaders’ summit in PittsburghBlueprint of the post-GFC regulatory reforms
32
Pivoting to implementation and evaluation of effects
End-2017: The post-GFC reform agenda largely completed
The G20 in 2019 and beyond
Full, timely and consistent implementation
Evaluation of effects• Central
clearing• Infrastructure
finance• SME finance• TBTF reforms
Addressing market fragmentation
Technological innovation
• Crypto assets
• Decentralized financial technologies
33
Pivoting to implementation and
evaluation
Financial stability and inclusion in an aging society
2019 Priorities
What would you choose as priorities for 2019 and beyond?
Monitoring and addressing emerging
risks and vulnerabilities
Roadmap to Fukuoka and Osaka
34
January 17 Symposium on demographic changes and macroeconomic challenges Tokyo
January17-18
Deputies’ meetings
April 2 (TBD)
Roundtable on AML/CFT issues relating to financial innovation Washington,
D.C.April 11-12 Ministers’ and Governors’ meetings
June 7 Symposium on aging and financial inclusion Tokyo
June 8 Seminar on financial innovationFukuoka
June 8-9 Ministers’ and Governors’ meetings
June 28-29 Leaders’ summit Osaka
Regulatory and supervisory fragmentation
35
• Inconsistent timing of implementation Staggered implementation of the agreed margin requirements, different rules
for counterparties in the same transaction.
• Inconsistent requirements “Almost the same but not exactly the same” data reporting requirements
across authorities.
• Duplication of regulatory requirements Single market, two rules, two regulators.
• Incompatibilities between home and host requirements “Don’t tell others in advance” vs “Tell us in advance” “Have a single parent entity in the host jurisdiction” vs “Separate sector-by-
sector reporting lines” “Install consolidated control” vs. “Keep data local”
• Competition for resources or activities Ring fencing CCP location policy
Market fragmentation
36
• Leaders’ declaration in Buenos Aires: “We will . . . through continued regulatory and supervisory cooperation, address fragmentation.”
• Focus on cross-border market fragmentation caused by regulation and supervision.
• Not about unwinding reforms.
• Market fragmentation is a matter of degree, not a bimodal question.
• Some of the fragmentations are intended.
• Full harmonization is not desirable or possible. Regulation and supervision reflect domestic policy priorities, developmental
stages, culture, available resources, etc. Banks are global in life and national in death.
-> Preventing unintended cross-border market fragmentationby processes and approaches for regulators, supervisors and international standard setting bodies
Technological innovation
Crypto-assets
Crypto assets are borderless by nature.
Can national regulators effectively address the challenges?
• AML/CFT
• Directory
• Platforms
Decentralized financial technologies
Public authorities have overseen financial systems mainly by regulating and supervising intermediaries.
How will they oversee financial systems where decision making and responsibilities are distributed among diverse stakeholders?
37
Aging and financial stability/inclusion
38
• Globally, two billion people will be 60 or over by 2050.
• In Japan, there will be half a million people over 100.
• Globally, there will be 130 million people with dementia in 2050.
• In Japan, about 200 trillion yen will be held by those with dementia in 2030.
There will be an estimated retirement savings gap of US$400 trillion by 2050 for these eight countries alone.
More Companies with Nomination and Compensation Committees
5
Ratio of listed companies that establish a nomination committee (statutory/voluntary)
1st Section: 34.3%
JPX-Nikkei Index 400: 61.2%
Ratio of listed companies that establish a compensation committee (statutory/voluntary)
1st Section: 37.7%
JPX-Nikkei Index 400: 63.7%
1st SectionJPX-Nikkei
400
2015 2016 2017 20182018 2015 2016 2017 2018 2018
1st Section JPX-Nikkei
400
Voluntary Statutory
(Ref.)
Companies with Nomination Committee (1st Section) Companies with Compensation Committee (1st Section)
(Ref.)
Statutory Voluntary
(Source) “Appointment of Independent Directors, Establishment of Nomination and Remuneration Committees, and Disclosure of Sodanyaku, Komon etc. (i.e. Former President/CEOs Holding Advisory Positions) by TSE-Listed Companies” published by TSE (Jul. 2018)
Dec. 2017: Joined the Sustainable Stock Exchanges (SSE) initiative.
Jul. 2018: Established the Sustainability Committee, led by Group CEO Akira Kiyota.
Oct. 2018: Expressed support for the Task Force on Climate-related Financial Disclosures (TCFD)
led by the Financial Stability Board (FSB)
Under Japan’s Corporate Governance Code, listed companies are asked to proactively pursue initiatives to provide ESG and other non-financial information.
Listed companies are asked to disclose environmental conservation and CRS activities, as well as initiatives toward appointing female executives in their corporate governance reports.
JPX collaborates with the Ministry of Economy, Trade and Industry to select :
Nadeshiko Brand Stocks for female empowerment (since FY2012)
and Health and Productivity Stock Selection (since FY2015).
On 5 November 2018, JPX welcomed Mark Carney, Governor of the Bank of England and Chair of the Financial Stability Board (FSB), for a discussion on promoting the TCFD.
Current stock market divisions open to the public retain the same structure as those before the integration of TSE and OSE cash equity markets in 2013.
1st Section (2,130 cos.)for companies with high liquidity
→ Five years have passed since market integration, and it has become more evident that the market structure should be improved.
→ Deliberate on (1) to (3), considering the characteristics of companies listed in each market division and the current tiered structure.
(In-depth deliberations are being conducted by the Advisory Group to Review TSE Cash Equity Market Structure established in October 2018.)
Note: Figures for each market division are as of the end of Dec. 2018.
JASDAQStandard (689 cos.)
for SMEs
JASDAQGrowth (37 cos.)
for emerging companies
Delisting
Market transfer
(1) Ideal entry-level market
*2nd Section,Mothers, andJASDAQ
(3) Ideal market transfer / market exit
(2) Ideal step-up market*1st Section
Mothers(276 cos.)for emerging companies
2nd Section(494 cos.)for established
companies
Market for a variety of companies (established / emerging companies)