Last Updated on Thursday, 26 September, 2024 at 9:29 am by Andre Camilleri
Dr Lina Klesper is an International Legal Assistant at PKF Malta
Japan, more than many European countries, is undergoing a profound demographic shift, with its ageing population reshaping the nation’s economic landscape. More than 30% of the population is now over the age of 65, and over one in ten is aged 80 or older. This demographic reality, often seen as a strain on public finances due to increasing healthcare and pension costs, also presents significant opportunities for the financial sector to innovate and create tailored solutions for older adults.
In response to these demographic pressures, the Japanese government has established special zones for asset management businesses in cities like Tokyo, Osaka, Sapporo, and Fukuoka. These zones streamline administrative procedures and offer tax incentives, aiming to attract both domestic and foreign investment. This move is part of a broader strategy to cement Japan’s position as a global financial hub, while catering to the needs of its “Silver Economy”—a rapidly growing market fuelled by the spending power of older consumers.
Japan’s asset management industry has seen remarkable growth in recent years. Assets under management have soared from ¥232.31 trillion (€1.49 trillion) in 2015 to ¥635.7 trillion (€4.08 trillion) by 2024, with much of this capital coming from household savings. This remarkable growth reflects a broader trend, including a leap from ¥358.76 trillion in 2020 to ¥485.65 trillion in 2021, followed by further increases in subsequent years. Japan’s government has long sought to shift the country’s savings, estimated at ¥2.1 quadrillion (€13.5 trillion), into more productive investments. Currently, more than half of these savings are held as cash or deposits, but there’s a growing shift towards investment products designed for retirees, such as annuities and funds offering financial security in retirement. This trend is fuelled by the rise of the Silver Economy, as Japan’s older population increasingly seeks financial products tailored to their needs.
Japan’s ageing population is not an isolated case, but part of a global pattern, with other nations facing similar challenges. Malta, for example, plans to increase its retirement age from 65 to 67 by 2033 to ensure the sustainability of its pension system. This highlights the shared challenges of ageing societies, but they also underscore the importance of tailored financial products and services that address the needs of older consumers. Japan’s Silver Economy represents a significant growth area, with increasing demand for investment products that provide retirees with financial security and a stable income stream.
Especially Tokyo is positioning itself as a leading global financial hub. With its excellent infrastructure, high quality of life, and a reputation for safety, the city is becoming an attractive destination for global investors. Recent high-profile deals, such as Berkshire Hathaway’s US$6.5 billion investment in Japan, demonstrate growing international confidence in the country’s economic stability despite the political uncertainty due to the unexpected resignation of Japan’s longest-serving prime minister, Abe Shinzo. Tokyo’s rise is driven in part by reforms from the Tokyo Metropolitan Government (TMG) and FinCity. Tokyo, organizations working to enhance the city’s appeal to global asset management and fintech firms. These efforts have attracted numerous international companies, with the TMG offering subsidies and financial support to firms setting up in Tokyo. This strategy is bolstered by national policies aimed at making Japan more attractive to foreign businesses, including reforms that simplify the taxation system, provide administrative services in English, and relax residency requirements for foreign professionals.
The establishment of special zones for asset management businesses is a key element in this broader strategy. This has resulted in increased foreign direct investment, with the inflow of capital reaching a 15-year high in recent years. As more international firms set up shop in Tokyo, Japan’s financial market is experiencing a period of significant transformation, poised to capitalize on the ageing population’s demand for retirement-focused financial products.
Alongside this financial shift, Japan is also placing greater emphasis on sustainability. With global trends leaning towards socially responsible investing (SRI) and green finance, retirees, many of whom are concerned with leaving a positive legacy, are increasingly drawn to sustainable investment products. This focus on sustainability not only aligns with the values of Japan’s older population but also positions the country as a forward-thinking player in global financial markets.
As the world faces the challenges of ageing societies, Japan’s efforts to streamline its financial market, attract global investment, and promote sustainability offer a blueprint for other nations. By capitalizing on the opportunities presented by its ageing population and embracing the Silver Economy, Japan is taking proactive steps to ensure long-term economic resilience.
In conclusion, Japan’s financial market is undergoing a crucial transformation, driven by the need to meet the demands of its ageing population while fostering sustainable growth. The creation of special zones for asset management businesses, combined with Tokyo’s emergence as a global financial hub, highlights the country’s forward-looking approach. By tapping into the potential of the Silver Economy and promoting sustainable investment practices, Japan is well-positioned to address the global challenges of demographic shifts while maintaining economic stability for future generations.
