Lecture Report

The first lecture of the Todai Finance Innovation Program was held on April 18th, at theDaiwa Ubiquitous Computing Research Building located within Hongo Campus of the University ofTokyo. The program has been newly established this year by Finatext Ltd / Nowcast Inc. inconjunction with the Center for Advanced Research in Finance (CARF), as an initiative to nurture
the next generation of talent who will shape the financial system of the near future. It consists of 15
lectures by guest speakers, all of whom are experts in their respective fields, to be held throughout
the course of the year (April 2017 – February 2018).

The first lecture on “The Economy and Finance” was lead by Atsuo Akai, chairman ofNowcast Inc. and visiting professor at the Research Council of the Comprehensive Research
Organization at Waseda University, who also serves as the Director of the Todai Finance Innovation
Program. The main points of discussion in the first lecture included, the characteristics and issues ofthe Japanese Financial System, the differences between the financial system in the United States andJapan, and the challenges facing the creation of a successful financial system for the near future.

Characteristics and Issues of the Japanese Financial System
The Japanese financial system has long been centered on financial intermediaries andpublic debt. Although previously multiple players were present in the system, providing funding atdifferent risk levels, recent global crises and the subsequent tightening of regulations has lead to thecurrent financial system centered around megabanks and regional banks. The issuance of public debt
has compensated for the lack of risk money available, however, the unsustainability of such practices
calls for a new solution. This mismatch of the supply and demand side for funding calls for thedevelopment of a multi-layered financial system, in addition to the mobilization of theapproximately 1500 trillion yen in individual assets of Japanese citizens that is largely laying
dormant.

Differences between the financial system in the United States and JapanThe comparison between the figures of U.S. Credit Market Debt / GDP and Japan Credit
Market Debt / GDP highlights how household debt accounted for a far greater percentage of the total
credit market debt in the United States compared to Japan in the period leading to the financial crisisof 2008. At the center of the financial crisis were subprime mortgages, with long-term mortgages

being packaged into short-term structured products through the Asset –Backed Commercial Paper(ABCP) conduit among others.
Meanwhile, the government debt in Japan is steadily growing, while the percentage ofthe total debt held by corporates and households is gradually decreasing. Without provision of
long-term funding or risk money by the financial system, important projects such as city planning,
investment in infrastructure, regional development, promotion of innovation, and disaster recovery
cannot proceed.

Creation of a successful financial system of the near future
Up until recently, the field of Economics has been regarded largely as a humanities
subject, however, recently science and technology is playing an increasingly large role in the field,with the prime example being the emergence of new trends such as Fintech. Hence, this program
will place emphasis on the utilization of science and technology to address current issues that thefinancial system faces, and consequently help to shape the financial system of the near future.
Without such adaptation to new needs and trends, Japan risks being left behind and isolated from therest of the world in a manner similar to the Galapagos Islands. Therefore, from the perspective ofscience and technology, it is necessary to identify where exactly the current financial system isrunning into walls, and providing proposals in order to overcome such barriers. It is not hard toimagine how such implementations or ideas stemming from the sciences and technologies could
possibly bring about a new paradigm in finance.

Finally, the program organizers have collated a list of reference books and recommended
books from each lecturer, and this list is to serve as a bible for participants in the program to grasp
the forefront of the current financial system as well as the developing Fintech trend. The reference
books serve to provide participants with a core understanding of the topics to be covered in eachlecture, so that the lecture itself may be dedicated towards in-depth discussions of the issues at theforefront of each field. Hence, it is highly recommended that each reference book be read in advanceof the corresponding lecture. On the other hand, the recommended books list was constructed byasking lecturers what they were currently interested in or fascinated by, providing participants withinsight into what the people working at the frontline of each field are currently turning their attention
to. Although these recommended books may not be of direct relevance to the content of the lectures,
they serve as an invaluable opportunity to place oneself at the frontline of economic and financial
thinking.