Provisional Translation

Policy Plan for Promoting Japan as a Leading Asset Management Center

Ⅰ. Basic ideas
 The Kishida administration promotes a “new form of capitalism” that transformssocial challenges into engines of growth through public-private collaboration. An
important piece of this concept is that cash and deposits, which account for more thanhalf of Japan's household financial assets of 2,115 trillion yen (as of the end of June2023), will go toward investment, and the benefits of increased corporate value will
be returned to households, leading to further investment and consumption. It is
important to realize a “virtuous cycle of growth and distribution” by creating a flowof funds that leads to economic growth, increasing household income from financial
assets as well as income from labor.
 Against this backdrop, the investment chain has been strengthened through measures
such as the “Doubling Asset-based Income Plan” (developed in November 2022) andcorporate governance reforms. In particular,- The government has taken measures to support their steady asset building byhouseholds, such as major expansion of and permanent establishment of NISA (tax
exemption program for retail investors)), promotion of customer-oriented advice,
and enhancement of financial and economic education;- The government has encouraged, including through monitoring, financial productsales companies to develop a framework for structuring, selling, and managing
financial products that serve the best interests of customers. In addition, in order tofurther establish and level up these initiatives, an Act was passed by the National
Diet to make it an obligation for financial service providers to carry out theiroperations honestly and fairly, taking into account the best interest of theircustomers. This Act brought corporate pensions into the scope of this obligation,
as they play an important role in asset building by households.
- Furthermore, the government has developed and revised the Stewardship Code andCorporate Governance Code and, recently, put together the “Action Program for
Accelerating Corporate Governance Reform,” aiming toward sustainable growthand increased corporate value of Japanese companies over the medium- to longterm. Efforts have also been made to improve the functioning of Japan’s financial
and capital markets.
 The government is determined to build on and continue these efforts. In this regard,a reform of Japan’s asset management sector and asset ownership is the remaining
piece to be embedded in the investment chain.
1- Asset owners are expected to entrust the management of the assets to asset
management companies with high capabilities, from the standpoints of taking into
account the best interest of their beneficiaries and conducting business honestly
and fairly.
- Asset management companies should enhance their analytical capabilities, makethe best use of their asset management capabilities, develop investment strategies
and provide financial products that yield better returns.
- Asset owners and asset management companies are also expected to be engaged instewardship activities in a proactive manner, which would contribute to sustainablegrowth and increased corporate value of Japanese companies over the medium- tolong-term, as mentioned above.
- In addition, it is important for asset owners and asset management companies tovisualize (disclose) their operation state of assets in a comparable manner, which
would allow assessments bybeneficiaries and customers and would lead to an
improvement in the capabilities of asset owners and asset management companies.
- Furthermore, it is also important to diversify asset class to include alternative
investments and sustainable investments, with a view to expanding the supply of
growth funds for the sustainable growth of Japan's economy and society, including
its local economies. It would also facilitate portfolio diversification.
 To this end, the government will promote:- a reform of the asset management sector;- a reform of asset ownership;- financing for growth and diversity in investment opportunities;- effective implementation of stewardship activities; and- strengthening of public relations and communications.
 Through these measures, the government will embed the remaining piece andpromote Japan as a leading asset management center, which will contribute to thegrowth of Japan’s economy and Japanese people's asset income.
Ⅱ. Follow up
 The Cabinet Secretariat and others will conduct a review of progress around June
2024.
Ⅲ. Reforming the Asset Management Sector
ⅰ. Enhance the asset management capabilities and improve governance of the asset
management sector
2Challenges- Given the important role it plays in managing household assets, it is essential thatthe asset management sector be trusted by the public and enhance their asset
management capabilities, if the “virtuous cycle of growth and distribution” is to beachieved.
- In particular, major financial groups have a crucial role to play. The entire groupneeds to commit to developing management and governance structures that take
into account the best interest of customers and ensuring their effectiveness.
- As human capital is the source of the competitiveness of the asset managementbusiness, major financial groups need to make efforts strategically to develop andretain diverse and highly-skilled human capital.
Policy Responses- The government will call on major financial groups to develop and publish theirplans to articulate the role and position of their asset management business in theirbusiness strategies, enhance their investment management capabilities, andimprove governance from the standpoints of enhancing expertise and developing
and retaining human capital.
- The government will develop a set of principles for product governance of asset
management companies to maintain the quality of financial products, including thedisclosure of the names of fund managers, with a view to ensuring that financial
products are developed in a manner which ensure the products that serve the bestinterest of customers are chosen. The government will ensure that the sales offinancial products are conducted in a customer-oriented manner, including
thorough strict enforcement of the principle of suitability.
ⅱ. Promote new entry of domestic and overseas firms into the asset management sector aswell as competition
Challenges- Currently, new entry of financial firms into the asset management sector is limitedin Japan, with unique business practices and entry barriers having been pointed out.
Through rectifying them and taking measures to promote new entry, it is necessary
to set up an environment in which excellent domestic and foreign businesses andtalents will gather in Japan and compete among them to provide better and welldiversified products and services to investors, including households.
- In addition, if asset management capabilities are improved and asset classes arediversified through competition by promotion of new entry, it will lead toenhancing investment for startups and listed growth companies, to which sufficient3

investments have not been supplied so far.
Policy Responses(A) Rectify Japan‘s unique business practices and removing barriers to entry- The government will set up an environment for encouraging transition from thecurrent double-check calculation 1 of net asset values of investment trusts to singlecheck calculation, including through industry efforts to standardize the calculation
methodology and new provisions in the Supervisory Guidelines which set
expectations in cases where a financial firm develops a rule for correcting net asset
values (materiality policy) 2.
- Furthermore, the government will work with stakeholders to rectify the
inefficiencies caused by the oligopoly of IT vendors for investment trusts, including
the issue of user fees.
(B) Establish special zones for financial and asset management businesses- In cooperation with relevant government ministries and agencies, the Financial
Services Agency (FSA) and aspiring local governments will work together toconcentrate financial and asset management services in specific regions andpromote their sophistication on asset management and competitiveness. In addition,
they will support the priority areas that these regions promote in an integrated
manner as targets for financial and asset management. The government will
promote these regional initiatives and national policies for promoting Japan as aleading asset management center (such as deregulation) in an integrated manner.
- From such perspectives, with the aim of establishing special zones, consideration
will be given to: (i) local initiatives (improvement of the business and living
environment, tax and financial support, enhancement of administrative services
including by greater availability of services in English, and support for priority
areas); and (ii) national support (financial sector, business and living environment,
regulatory reform related to priority areas and enhancement of administrative
services including by greater availability of services in English).
- The FSA will announce an outline of the special zones at the end of 2023.
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In Japan, the net asset value of an investment trust is calculated and verified by both the asset
management company and the trust bank on a daily basis (double calculation). It has been pointed outthat it is a business practice unique to Japan that causes additional costs for investors and barriers to
new entry. In the United States and Europe, trust banks or professional firms are often in charge of thistask (single calculation).

2“Materiality policy” is a provision that stipulates that a revision of the net asset value of an investment
trust will only be taken when there is a material error in its calculation.
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Subsequently, the FSA will develop and publish a package of the special zones
around summer 2024 after inviting local governments to participate, followed byconsideration in cooperation with relevant government ministries and agencies.
(C) Introduce a new program to support new entrants (Japanese EMP)
The government will develop a program to facilitate entrustment to emerging asset
managers through joint public-private initiatives, and take the following measures:- The Asset Owner Principles (see IV. i. below) shall include a provision on thetreatment of emerging asset managers in the selection of fund managers from thestandpoint of ensuring that an asset manager who takes into account the bestinterest of beneficiaries and conducts its business honestly and fairly is selected.
- The government will request that financial institutions such as banks and insurancecompanies entrust asset management to emerging asset managers actively and not
exclude them simply because their business history is short. The government will
also encourage asset owners not to exclude emerging asset managers simply
because their business history is short, but to select appropriate asset managers
from a wide range of pools, including emerging asset managers, from thestandpoint of selecting those who take into account the best interest of beneficiaries
and conduct business honestly and fairly, which is expected of asset owners. In
addition, the government will take stock of and publish the examples of initiatives
taken by financial groups with a view to encouraging their further efforts.
- The government will provide a list of emerging asset managers (entry list) under ajoint public-private initiative for use by financial institutions and asset owners whowant to use emerging asset managers. In addition, the attractiveness and potentialof the Japanese market, including the discovery and utilization of emerging asset
managers, will be communicated and shared at the Asset Management Forum (seeVII. below).
- To promote new entry of firms into the asset management sector, the government
will deregulate to allow asset managers outsource middle- and back-office
operations and entrusting all asset management mandates to a business entity
whose quality of services has been appropriately secured.
- In addition, the government will expand the Financial Start-Up Support Programand one-stop centers such as the Financial Market Entry Office.
Ⅳ. Reforming asset ownership
ⅰ. Develop “Asset Owner Principles”
Challenges
5- From the standpoints of taking into account the best interest of their beneficiaries
and conducting businesses honestly and fairly, asset owners are expected toenhance their capabilities, including through setting goals according to theobjectives of asset management and selecting the asset management company byrigorous assessment of whether it could meet the goals. In addition, asset
management fees that are commensurate with the added value generated by active
management and engagement will create incentives toward sophistication of theasset management sector.
- The scope of asset owners is broad, including public pensions, mutual aid
associations, corporate pensions, insurance companies, and university funds.
Whereas the issues differ from one asset owner to another, asset owners havecommon roles to play from the standpoints of fulfilling their responsibilities toachieve their respective investment objectives and targets and bring about
appropriate investment results for beneficiaries.
Policy Responses- The government will develop “Asset Owner Principles” by summer 2024, which isa set of common principles for asset owners' asset management, governance andrisk management. In the process of development, it will consider the issues among
those listed in the next section (ⅱ. Reforming Corporate Pension Funds) that arecommon to asset owners other than corporate pensions, such as public pensions
and mutual aid associations, but were not discussed at the Sub-Committee on
Promoting Japan as a Leading Asset Management Center.
ⅱ. Reform Corporate Pension Funds
 There are various types of entities among asset owners. Of these, there are two major
types of corporate pensions: defined benefit corporate pension plans (DBs) anddefined contribution pension plans (DCs). They play an important role inguaranteeing benefits in addition to public pensions and enabling households to leada more affluent lifestyle in their old age. Corporate pensions also play an importantrole as part of "investment in people." To make best use of these roles and maximize the interest of their beneficiaries, it isimportant to advance efforts to improve the management capabilities of corporate
pensions.
 In the case of DBs, contributions can be reduced or suspended if the investment
performance is strong over the long term, and the level of benefits can be reviewed
upwards if a high level of asset accumulation continues. On the other hand, thebusiness owners have to make additional contributions if the investment performanceis poor and the funding shortage exceeds a certain range.
6 From these standpoints, active discussions were made at the Sub-Committee on
Promoting Japan as a Leading Asset Management Center by representatives ofrelated ministries and Committee members with respect to the challenges facing
corporate pensions and the measures to address them; the results of the discussion
are described in this section, “Reforming Corporate Pension Funds.” At the sametime, this does not mean that corporate pension funds has more challenges than otherasset owners. It should be noted that corporate pensions are one of the retirement
benefit schemes, and each corporate pension plan is defined by agreement between
labor and management on a company-by-company basis. The optimal solution
therefore differs by company.
(A) Reform defined benefit corporate pension plans (DBs) 3
a. Improve asset management capabilities
Challenges- In order for each DB to execute its operations in an honest and fair manner, taking
into account the best interest of beneficiaries, it is important that it develop the mostappropriate management policy 4 based on the financial and personnel strategies of
the company and the status of pension finances, select an appropriate asset
management company based on the management policy, and review the policy
periodically in accordance with changes in the circumstances surrounding thecompany. In addition to continuing these efforts, it is particularly important toexamine expected rates of return and review asset allocation as necessary, keeping
a close eye on emerging new changes in economic and market conditions.
- In this regard, over 90% of all DBs are less than 10 billion yen in total assets, andit has been pointed out that ensuring that such small DBs fulfill fiduciary duty andimprove their expertise would place burden on them. While outsourcing by a small
DB of management operations to a single financial institution (called “generalmanager” 5) should not be denied from efficiency standpoints, it is also important3

In DBs, the benefits to be received by employees in the future are determined in advance. Businessowners pay the necessary contributions and manage assets. The total assets of DBs in Japan is about¥ 66 trillion, accounting for about 70 percent of all corporate pensions.

4

In order to prevent the selection of asset managers from being distorted by the business relationshipwith the company, it is important for asset managers and their financial groups to conduct business inan honest and fair manner, taking into account the best interest of customers.

5

A financial institution who represents multiple financial institutions in accordance with the DB's policy,
receives and allocates contributions according to each financial institution's share, pays benefits, and7

that such a DB compare the general manager with other financial institutions andswitch the institution when necessary 6.
Policy Responses- To ensure that DBs take into account the best interest of beneficiaries and execute
their operations in an honest and fair manner, the government will take necessary
measures, including: promotion of efforts for human resource development at DBs,
through training and information provision on asset management, aimed at
improving their investment capabilities and raising their awareness of fiduciary
duty; and amendment of the relevant guidelines to encourage regular assessment
by DBs of the performance of the management contractors, including the generalmanagers, regardless of the form of the contract, and to facilitate a review by DBs
of management contractors, including switching to another firm as necessary
depending on their asset management capabilities.
b. Expand joint management options
Challenges- Although financial institutions have already developed schemes for joint
management so that small-sized DBs can manage their assets efficiently, it isconsidered useful from the standpoint of fiduciary duty and expertise that suchsmall-sized DBs participate in the joint management scheme by the Pension Fund
Association, which is also an asset owner,.
- On the other hand, it has been pointed out that, with regard to comprehensive
corporate pension funds comprised of multiple employers, the employers tend tolack the awareness that they are the responsible operators of the pension funds.
Efforts have therefore been made to strengthen the governance of these pension
funds.
Policy Responses- The government will encourage the Pension Fund Association to make efforts toimprove its joint management scheme, including by enriching its product lineup,
to enable more small-scale DBs to make appropriate use of it, based on appropriate
cooperation with financial institutions, including trust banks, while taking into
account the appropriate governance.
integrates the payments.
6 It has been pointed out that, in cases where the DB outsources asset management to the general manager,

the switching costs from one general manager to another are high and the constituent asset managers
may be fixed.
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c. Promote disclosure of investment information for subscribers
Challenges- While information on DBs is already circulated to subscribers, it has been pointed
out that there is information asymmetry among pension fund managers, businessowners, and subscribers. For the best interest of subscribers, it would be useful toincrease transparency so that business owners and subscribers can compare theinvestment information of the pension fund with that of other funds when
conducting necessary reviews of the DB scheme, including investment policies. In
doing so, it is important for pension fund managers to smoothly provide
information to plan sponsors.
Policy Responses- Regards the DBs, measures will be taken to raise awareness of the meaning of theaforementioned investment results of DB funds and to disclose the information on
the pension fund, including the status of asset management and the initiatives
related to the utilization of skilled person, in a manner that can be compared withother funds. Specific measures for the disclosure will be finalized along with theconclusion of the next revision of the pension system (at the end of 2024), including
the possibility of compilation and publication of information by Ministry of Health,Labour and Welfare, taking into account the size of DBs among others. The newmeasures will be implemented at the time of enforcement of the next revision of
the pension system, though some of these measures may be implemented without
waiting for it.
(B) Reform defined contribution pension plans (DCs) 7
a. Improve the framework for appropriate product selection
Challenges- As DCs are managed by individual employees, it is important to select appropriate
management policies at each stage of the management institutions entrusted withthe management of DCs by the business owners, business owners, and subscribers(individual employees) themselves.
- Given the economic circumstances in which prices and wages are rising, adequate
consideration of inflation risk (the possibility that real future purchasing power

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In DCs, the amount contributed by business owners is predetermined in advance, and employees
receive benefits based on the investment results. Asset management is carried out by individual
employees. The total assets of DCs in Japan is about ¥ 18 trillion, accounting for about 20 percent of all
corporate pensions, and the number of companies utilizing DCs is increasing.
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cannot be secured) is essential when selecting an appropriate investment policy. At
present, however, approximately 30 percent of subscribers invest in principalguaranteed funds only.
- It has been pointed out that efforts should be made to standardize part of the DC
operations to improve the efficiency of the management of DCs and reducemanagement costs.
Policy Responses- In order to ensure that appropriate selection about investment policy is made ateach stage of asset management institutions, business owners, and subscribers, suchas changing designated investment methods to investment products and improving
the investment portfolio based on agreements between labor and management, thegovernment will take measures such as to promote efforts to disclose information
on designated investment methods and the investment portfolio, continuing
financial education, and sharing of good examples, in cooperation withstakeholders. The measures may include encouraging business owners to explain
to subscribers more carefully the risks involved in adopting principal-guaranteed
investment products as a designated investment method in a market environment
where prices are rising, and to review the composition of investment portfolio as
necessary.
b. Promote disclosure of investment information for subscribers
Challenges- While the management policy of DCs is already notified to subscribers, it has been
pointed out that it is difficult to compare the investment policies. For the bestinterests of subscribers, it would be useful to promote disclosure so that businessowners and subscribers can appropriately compare and select the investment
policies, including comparison with other companies and other asset management
institutions.
Policy Responses- Measures will be taken to disclose the information of each business owners,
including the lineup of investment policies and the status of asset management, ina manner that can be compared with other business owners. Specific measures forthe disclosure will be finalized along with the conclusion of the next revision of thepension system (at the end of 2024), including the possibility of compilation andpublication of information by the Ministry of Health, Labour and Welfare. The newmeasures will be implemented at the time of enforcement of the next revision of
the pension system, though some of these measures may be implemented without
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waiting for it.
(C) Further promote private pensions, including corporate pensions
Challenges- Those participating in private pensions, including corporate pensions, account for
approximately 30 percent of those insured by employees' pension plans. It istherefore necessary to make further efforts to promote private pensions and provide
support toward that end in order to enable households to lead a more affluent lifein their old age.
Policy Responses- The new public organization to accelerate financial and economic education, whichis expected to be established as a new authorized corporation, shall conduct
government-wide public relations activities related to private pensions incooperation with relevant ministries and agencies. Specifically, the organization
will support education for employees in the workplace (by dispatching lecturers),
including at companies that have introduced corporate-type DCs, and develop
public relations activities related to corporate pensions and private pensions,
including iDeCo 8.
Ⅴ. Promoting Financing for Growth and Diversifying Investment Opportunities
ⅰ. Promote investment in startups with growth potentials
Challenges- For the sustainable growth of the Japanese economy, it is necessary to set up anenvironment that promotes investment in startups and transactions of unlisted
equities.
Policy Responses- The government will develop a set of principles for venture capital funds with aview to promoting investment in startups. The government will also promote fairvalue evaluation of unlisted equities and ease the regulation for investment
crowdfunding.
- In order to promote the issuance and transactions of unlisted securities, the8

The individual-type defined contribution pension plan (iDeCo) is one of the private pension plans,
which means that enrolling in the plan is optional. Based on the Doubling Asset-based Income Plan,
etc., the government will also reform the iDeCo system in conjunction with the next pension system
reform.
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government will ease the entry requirements for business operation that solicits andintermediates unlisted securities for professional investors and for business
operation of proprietary trading systems that only handle unlisted securities, as wellas the regulations related to listed venture funds. The government will also review
the disclosure requirements for small-amount public offerings to reduce the burden
on startups.
ⅱ. Diversify investment opportunities, including alternative investments and sustainable
investments 9
Challenges- It is necessary to improve risk diversification and investment opportunities throughpromoting the provision of various investment products according to investors’
risk-bearing capacity.
Policy Responses- From the standpoint of diversifying investment opportunities for investment trusts,
the Investment Trust Association of Japan (JITA) will revise its self-regulation toallow investment trusts to partially include unlisted equities in their investment
portfolios.
- In addition, the JITA will revise its self-regulation to allow the incorporation ofunlisted foreign-based investment trusts that includes alternative investments into
publicly offered domestic investment trusts.
- The government will host a “Dialogue on Enhancing Sustainability Investment
Products” by the end of 2023 among various stakeholders such as asset
management companies, financial product sales companies, and experts.
- The government will set up a framework for making the platforms for DVP(Delivery Versus Payment) settlement in foreign currencies available to promote
the issuance of domestic bonds denominated in foreign currencies.
Ⅵ. Effective Implementation of Stewardship Activities
Challenges- In order to expand the domestic market, it is important to improve the attractivenessof the Japanese market as well as reform the asset management industry. It is
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We will promote impact investment in the aspect of investment diversification. In addition, regardlessof investment diversification, the development of businesses and infrastructure in local regions as
investment target is itself important for local economies, and it is also important to be invested into suchfields.
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necessary to promote effective engagement between investors and companies withthe aim to increase corporate value over the medium- to long-term.
Policy Responses- The government will work with the Tokyo Stock Exchange (TSE) to follow up on
the initiatives by listed companies toward development, disclosure, andimplementation of their business plans in response to the TSE’s request “Action to
Implement Management that is Conscious of Cost of Capital and Stock Price.”- The government will promote effective engagement efforts by institutional
investors, including through consideration of a review of the large shareholding
reporting rule.
Ⅶ. Strengthening Public Relations and Communications
Challenges- It is important to continue dialogue with related parties in order to advance theabovementioned measures in line with the needs of related businesses and investors
in Japan and abroad. It is also important to disseminate information on theattractiveness of the Japanese market.
Policy Responses- An “Asset Management Forum” will be launched in collaboration with domestic
and overseas asset management companies as core members, as well as with related
businesses and investors. A preparatory committee for the forum will be establishedby the end of 2023. The government will also exchange views with local
governments, businesses and investors on measures for promoting Japan as aleading asset management center, and consider further policies and measures asnecessary.

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