TOKYO -- As Brexit looms and the world looks to Frankfurt as the financial center of Europe, Tokyo looks the other way, tapping the City of London as its partner in its quest to become a hub of international finance.
Has Tokyo chosen the right city as its financial model? Gov. Yuriko Koike thinks so, even as London's financial elite contemplate packing their bags.
In an interview with the Nikkei Asian Review on Thursday, Koike defended her decision to sign a four-year agreement earlier this week with London's financial district that encourages closer collaboration to stimulate financial activity in both capitals.
"Despite Brexit, London's potential will not easily diminish," Koike said. "First, they speak English. And second is Britain's history of conquering the Seven Seas." The governor continued her praise of the City, adding, "The current Lord Mayor of London -- the City's chief -- is the 690th to take office. It is irreplaceable."
While acknowledging that Frankfurt is also an important financial center, she noted that its population of 717,600 is relatively small. Her implication was clear: Tokyo, a city of 13 million, could learn more from London with its population of 10 million. "London is very enthusiastic about a partnership," she said. "We are too. It's mutual love."
The memorandum of understanding with the City includes joint financial training and promoting eco-friendly investments. A first step would be to hold networking events between representatives of Japanese and British financial institutions to get to know each other, she proposed.
Pumping up GDP
In explaining her reason for focusing on finance, Koike said the sector still had a lot of room to grow. "In the U.K., finance accounts for 10% of gross domestic product," she noted. "Some say it is even 12%. Our country lags at 5%."
"By increasing the size of our financial industry, that figure could go up to 8% or 10%," the governor added. "My calculation tells me that it would boost GDP by 30 trillion yen ($267 billion)."
Koike even said that her plan would help Abenomics, the economic policy of her political rival Prime Minister Shinzo Abe, who wants to push GDP from 500 trillion yen to 600 trillion yen.
"Just as the automotive industry is at a crossroads as it chooses between combustion engines, electric vehicles and autonomous vehicles, so too is the financial industry as it embraces fintech and artificial intelligence," Koike said. "Just look at how much further China is in smartphone payments."
Yet, it is the exponential spread of smartphone payments in China that gives her confidence in Tokyo as a financial hub, she said. "Japan is a stable country that can be trusted. The flip side of the spread of smartphone payments in China is the peoples' distrust of the yuan. And while paying by smartphone is convenient, it allows more government control over your transactions."
But would the financial wizards of Hong Kong and Singapore trade in their comfortable and relatively easy lifestyles for Tokyo, where most people do not speak fluent English?
Koike had an answer: "Technology can solve that. We will have translation devices on taxis to assist drivers," she said triumphantly. "That is, of course, if you speak clearly. If you don't, well, the machine won't work."