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Interview with Junichi Ujiie, Chairman, Nomura Holdings, Japan, on the keys to sustained economic recovery in Japan
 How much in your view still needs to be done by way of new reforms—and in what areas—to sustain Japan’s recovery?
Structural adjustments in the private sector have helped steer the economy out of deflation. However, fiscal reform is still in its infancy and we are yet to see full-scale restructuring of the government sector. In my view, the key to a sustainable recovery now lies in speeding up fiscal reforms and ensuring stability in the financial markets.
In doing so, careful consideration needs to be taken to ensure that structural reforms in the government sector don’t destabilize the private sector. This means that the delayed approach to tax hikes as seen in the Koizumi cabinet’s policy for a small government should be carried over to the next cabinet. The small government policy calls for not only cuts to expenditure, but also the selling off of state assets and the transfer of government business operations to the private sector via market tests.
To be sure, tax increases will become necessary as fiscal reforms move forward. However, for now the priority should be to pare unnecessary government expenses and raise transparency in regards to how tax revenue is used. This will make it easier for the public to accept take hikes down the road.
In terms of finance, the structural shift we are seeing in individual financial assets from savings to investment needs to be accelerated to underpin a sustainable recovery in the economy. Taxes on gains in equity trading and dividend income have been halved to 10 % until December 2007 and March 2008, respectively. Consideration should be given to making these tax cuts permanent.
How is the business model of Nomura Holdings changing, given the rise of India and China?
The striking growth seen in China and India recently, and their accompanying advance onto the international finance scene, has given rise to huge potential markets in terms of both investors and product supply. Nomura is highly focused on matching needs for raising and managing funds within Asia, including Japan. As such, we see the recent developments as a great opportunity for potential expansion.
In China, we are looking to establish a firm presence domestically and we are currently building up our client base of both large and medium-sized companies through our M&A advisory business and consulting operations. We are also pursuing more profitable businesses in such areas as capital markets and principal finance. Our next step will be to enter asset management in China. |  |
"Tax increases will become necessary as fiscal reforms move forward. For now the priority should be to raise transparency in regards to how tax revenue is used."
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Our knowledge of clients and markets in China, coupled with our expertise in developing cross-border business flow, helps us strengthen our value towards global clients, especially in Asia. Going forward, a successful in-out business with powerful distribution of various kinds of investment opportunities in China including listed equity through QFII, private equity and property related products will differentiate us in terms of product quality and quantity for global and Asian investors. At the same time, our placement capacity in the Chinese market will strengthen our competitive power in origination business outside China, especially in Asia.
In India, meanwhile, we are taking a similar approach as in China. We are very focused on pursuing cross-border business as part of a broad-based business plan. We are naturally mindful of how we can best respond to the needs of our other Asian and global clients when implementing business plans. We also seek synergies between India, China and other parts of Asia as well as with our global business operations.
The World Economic Forum on East Asia is focusing on ‘Creating a New Agenda for Asian Integration’. What is your scenario for the region in 2015?
In 2015, Asia will undoubtedly become a bigger part of the world economy. This will be supported by the rapid growth of China, India and ASEAN as well as the solid growth of Japan.
A number of factors should contribute to the rise of Asia. First, intra-regional trade should increase dramatically. Implementation of various free trade agreement networks will enable corporations to operate in more multinational and productive ways.
Second, cross-boarder investments should increase significantly as we foresee steady growth in domestic demand in Asian economies. These cross-boarder investments not only include investment from outside Asia but also intra-regional investments.
The rise of the middle class in Asia will provide ample opportunities for both multinational and domestic companies to explore, particularly in China, India and some of the ASEAN economies. The increase in domestic demand will make Asian economies more resilient to fluctuation in external demand, such as the slowdown in the US economy.
Third, we cannot underestimate the importance of developing the capital markets in Asia. This should provide an important foundation for companies to make intra-regional investments in a more efficient manner.
What are the keys to sustained growth in ASEAN?
I believe there are three important keys to sustain growth in ASEAN. First is the importance of keeping ASEAN as an attractive investment destination. The six original members of ASEAN made considerable efforts to integrate their economies by lowering import tariffs through ASEAN Free Trade Area (AFTA). ASEAN plans to integrate markets further by lowering tariffs further and expanding the low-tariff arrangement to less-developed member countries. This means that multinational companies will increasingly see ASEAN as a single market rather than a collection of several markets, which will allow them to benefit from economies of scale.
The next key is to implement structural adjustment policies in a more rigorous way. Rising economic powers such as China and India may affect ASEAN economies negatively if ASEAN does not move up the value-chain ladder. I think that ASEAN governments and business communities are making great efforts on this front, especially after the Asian financial crisis. But it is important to carry on the reform in an aggressive way to further improve efficiency in the economy. If this materializes, I am sure that ASEAN will benefit from the rising demand from China and India rather than lose its edge.
The third key is to maintain conservative policy to achieve economic stability. The experiences of the Asian financial crisis tell us that the boom and bust cycle may cost the economy by way of a prolonged stagnant period. Generally speaking, ASEAN authorities are currently sticking to conservative fiscal and monetary policy. I believe it is important for them to maintain this course. Indeed, we can see a dramatic recovery in FDI into ASEAN economies. Multinational companies now pay attention to Vietnam in addition to China as a low-cost production base. Japanese automobile producers have chosen Thailand as one of their global production bases. And Singapore is now widely recognized as a regional financial center, particularly for India. |
