Tokyo has struggled for years to pitch itself again as a major financial hub, but its ambitions might be saved by what Homer Simpson once called the two sweetest words in the English language: "De fault."
The city's been trying to recover from a reputation that's taken a battering. Having once been a capital of the financial world, last month it tumbled out of the top 20 in one ranking of banking centres, behind the likes of Asian rivals Seoul and Beijing. Shenzhen, barely a dot on the financial map when Tokyo's markets were at their peak three decades ago, now ranks nine places higher.
Various attempts to woo foreign traders have come up against some inalienable truths that even the likes of Governor Yuriko Koike have struggled to fix: A large taxation burden compared to Hong Kong and Singapore, the fact that Japanese and not English is the language of both day-to-day life and bureaucracy, as well as a maze of red tape.
There are green shoots suggesting that Tokyo might now be looking more attractive — if for no other reason than the fact that its main rivals look worse. Ken Griffin's hedge fund, Citadel, is planning to set up in the city for the first time since the global financial crisis, Bloomberg News has reported. That follows the arrival of market-maker Citadel Securities, a separate entity founded by Griffin, to the capital last year, one of nine financial firms that secured licences in 2022. Most recently, Steve Cohen said his Point72 Asset Management is increasing its staff there by 20%.
It's a small start, but a start nonetheless. After Japan's lengthy closure to the world during Covid, the country is getting another look. Warren Buffett gave his seal of approval earlier this month with his first visit in 12 years, citing a "strong feeling" that the market will continue to grow over the next half-century.
But if Tokyo does recover its financial mojo, it won't be due to the push spearheaded by the FinCity Tokyo organisation to promote its appeal. When that group was formed in April 2019, something more influential was happening elsewhere: The pro-democracy protests in Hong Kong. Four years later, things look quite different.
The city may now be recovering from its pandemic-era constrictions, but it's been diminished as an international hub, and Beijing has revealed the hollow nature of its promises over the One Country, Two Systems policy. Hong Kong's population is in decline as expats leave, evidenced last week by a 12% drop in foreign students enrolled at international schools.
On the mainland, cities such as Shanghai, Beijing and Shenzhen may be climbing in financial centre rankings, but the Covid-Zero era and its chaotic ending spooked many. So too have the worsening relations between the US and China, and talk of war over Taiwan. While the risk may be low, the sporadic arbitrary detention of foreigners also weighs on the minds of expats, after Canadians Michael Kovrig and Michael Spavor were held for nearly three years. Just this month, an employee of Japan's Astellas Pharma Inc. was the latest to be arrested.
Low-tax, highly safe Singapore has been the logical winner from this — almost too much so. It's suffering from its own issues, most notably a dizzying surge in housing costs amid limited supply. Rents jumped 30% in 2022 alone. The city-state is also trying to balance attracting foreign talent with domestic concerns over a wealth gap, while visa quotas make it difficult to accommodate everyone looking to flee Hong Kong.
That opens up a window for Tokyo. As visitors return in droves for the first time in four years, they tend to remark upon how the city is defying a narrative of terminal decline. A building boom that continued during the pandemic means the city looks better than ever. Indeed, it is one of the few major, developed metropolises that also builds. Tokyo's five major business wards will add 760,000 square metres (8.2 million square feet) of new office space this year, with redevelopments of the Toranomon business district and tech-friendly Shibuya nearing completion.
The rental market is running hot, with supply at an all-time low, according to one survey, yet the city is still surprisingly affordable: Average rents have risen just 3.6% in the past three years. While Tokyo's brutally efficient housing market means it may not be a great investment, workers will find somewhere to live much easier than in the likes of Hong Kong.
Despite a reputation for being opposed to immigration, the country is desperate to attract elite professionals. The government recently launched a fast-track visa program for educated high earners, who can obtain permanent residency in just a year.
And some areas of concern to the expat community are also being addressed. There's a mini-boom of new international schools, with more than 3,000 new student slots to be added in the coming years as institutions such as Harrow build campuses. While the live-in help favoured in Singapore and Hong Kong isn't commonplace here, many are unaware of a domestic help visa that lets the well-off sponsor housekeepers — an option that, incredibly, isn't even available to Japanese citizens.
None of this is to say Tokyo is back, or that it will ever again become the international centre it dreams of being. But the scars of recent setbacks — from the financial crisis to the triple earthquake, tsunami and nuclear disaster of 2011 that frightened many residents away — are fading and its importance to the US in geopolitical terms is growing. If Buffett, Griffin and Cohen — together the fourth, 21st and 50th richest individuals in the US — think Tokyo is back, it might be worth another look.
Gearoid Reidy is a Senior Editor at Bloomberg
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement