Relative to Japan’s economic power, Tokyo has not performed very well as an IFC. A 2011 paper published by the “China Center at Brookings” entitled, “Building A Global Financial Center in Shanghai: Observations from Other Centers”, nominated Tokyo as “an example of a potential global financial centre whose governmental policies and overall structure of business and government held it back from gaining true global status, despite major advantages”.

These advantages include: a large pool of private savings; some of the largest financial institutions in the world; an educated and hardworking labour force; and a high quality of life.

“Clearly, the bursting of its major bubbles in real estate and equity markets, followed by well over a decade of anemic overall growth in the economy were major factors. However, there are a number of institutional and policy factors that contributed mightily to the failure.”

Economic stagnation eventually prompted the government to announcement in 1996 a policy of reforming Japanese financial and capital markets to become “free, fair and global” and to upgrade Tokyo to become comparable to London and New York by 2001. A broad list of measures with specific time schedules was subsequently announced, and were implemented in the 1998 to 2001 period.

However, success never really came.

The China Center at Brookings paper noted that the “regulatory and political decisions, and the resulting institutional structures and operations, were largely designed with an inward-looking view.”  So solutions were “highly tailored to (Japanese) domestic requirements” and the cosy nature of many business (and political) relationships “made it difficult for outsiders, including foreigners, to compete.”  Moreover, “and partly as a result of the first point, Japan tended to regulate finance in a way that stifled new products and ways of doing business.”

But, “even outside these constraints, Japan made relatively little effort to bring global business back to Tokyo.”

This assessment is supported by this recommendation from a 2007 report by the International Bankers Association (IBA) in Japan: “Recommendations to Promote Tokyo as a Global Financial Center”: “We would not recommend that Tokyo attempt simultaneously to become a financial center in all aspects. For example, with its huge domestic market, it is not necessary or sensible to make the adjustments to the legal and taxation framework needed to create a large offshore wealth management industry.”

One of the conclusions Sayuri Shirai, Keio University, (writing in 2007) was that “the regulatory environment needs to be improved with greater emphasis toward a principles-based system”. (He notes in a footnote that a “rule-based” system aims to improve the predictability of market participants with respect to regulations by setting rules in detail, while a “principle-based” system “aims to encourage the voluntary efforts of market participants while ensuring management freedom by laying down key principles and demanding that those principles be observed”.)

The China Center at Brookings paper also noted that Japan’s generally high quality workforce did not necessarily mean easy interaction with the rest of the financial world. “Tokyo used Japanese law and the Japanese language for most transactions”, making it difficult foreigners to come to Tokyo and bring skills.

Legal difficulties of associated with financial innovation in Moscow and Tokyo have already be mentioned in this report.