CEO, Japan Exchange Group
Saito says the Japan Exchange Group's goal is to become the most preferred exchange in Asia. But with other Asian bourses gaining ground, he believes the company still has much more to do.
"Our capitalization today is about 800 billion yen as of the end of last year. But large group like Hong Kong, Dutch Booth, are worth more than 1 trillion. So we are not necessarily such a high-ranking venue yet. In addition to that, a recent, very clear movement is that Asia seems to be the center of the commodity market because of the volume of consumption in Asia - China, India, and others. So accordingly, leading players of commodity like Intercontinental Exchange (ICE) and Chicago Mercantile Exchange (CME) are coming into the Asian market. All these are very, very tough competitors for us. And if we miss this collaboration or participation or competition with them, Japan itself will drop out of this front. So, I'm very keenly concerned about how we can make good progress in this field.In addition to that, I would like to look for any good relationship, friendly alliance with other bourses, instead of mergers and acquisitions. Mergers and acquisitions are not easy to work for the exchange or venue, because unlike the United States, all Asians usually have one exchange in one state. I'd like to seek double listing of corporations, and we are very ready to offer our traditional standard or rule or regulations, because we have embraced the very free-market-oriented capitalism for more than 100 years, so in Asia, we have a lot of accumulation of experience. We are very pleased to offer these ideas to our friends in Asia."
The company is launching a new stock index on January 6th. The index includes companies with high returns on equity, in an attempt to boost the appeal of Japanese markets.
"Average return on equity in Japan has been about 5.7 to 6% in contrast to the 13, 14% of the West, or even China, with 13%. From our viewpoint, that is a problem for us. So we have to make Japanese business leaders more focused on the efficient usage of capital. If this index is well accepted throughout the market, Japanese managers will change their policy to focus on more efficient usage of capital, and that will eventually enhance our productivity. That is our target, so this index has a very big mission for Japan."
Saito predicts Japan will record a slower but solid economic growth of 1 to 1.5% in 2014. He says it's up to the government to ensure that the economy keeps its momentum.
"If Prime Minister Abe is so serious to regain the nation's international competitiveness, we have to fundamentally change the tax regime or labor rules, and endorse much more abolishment of unnecessary barriers. Our level of corporate tax is extremely high, second to the United States, and it's killing our competitiveness in the international market. Neighbors like Singapore or Hong Kong are absorbing a lot of money from the international financial market. So from our viewpoint at Japan Exchange Group is we'd like to take back that kind of money to Japan."
Saito is also eyeing prospects on the Chinese market.
"The Chinese market is very attractive for us. If there are no barriers between us, I'd like to communicate freely and we'd like to open the gate for them, and they will open the gate for us, and endorse the mutual listing of Chinese and Japanese companies. That's ideal, and definitely Chinese companies are facing a desperate need for funds and capital. We have very affluent funds here in Japan. Why should we not offer this capital to them through corporate ventures, corporate bonds, or even equity finance? So I'm carefully watching to see if we could make some approach to their market."
Saito warns that economists need to watch closely as the US Federal Reserve prepares to scale back its monetary stimulus later in January. But he also points out that Japan may be able to play a major role in softening the impact of this policy.
"The tapering in the United States will definitely have a negative influence on the outflow of funds from these Asian states. It's a very delicate monetary policy game. For this year, people are expecting steady growth in Japan, the United States, the United Kingdom, Germany – the so-called advanced states rather than the emerging states. So if these advanced states which implemented an extremely relaxed monetary policy over the past two, three years convert or change the policy to tapering, then they will absorb this idle capital from developing countries. Some Asian nations to some extent will suffer. And in Asia, Japan is a major capital supplier. China is probably cash-rich, but government officials there are not so much for the free market, so I think Japan can play a major role on this stage. South Korea, Indonesia, the Philippines, Vietnam, will all be looking for capital this year while European banks withdraw from this market. And Japanese banks are coming into Southeast Asian markets with more lending. On a year-to-year basis last year, they increased lending to these East Asian businesses by about 20% or so. So 2014 will be a very interesting year."