KEY POINTS:
Move over Frankfurt. Forget Paris, Los Angeles and Toronto, too. Asian cities are rapidly surpassing each of these metropolises as centres for global business.
Tokyo, for example, has taken the number-three spot behind London and New York, according to MasterCard Worldwide's Centers of Commerce Index. More importantly, Asia had four cities in the top 10, the best showing of any region. Europe and the United States each had three.
Ten years after the Asian crisis, booming markets are attracting capital. With strengthening financial systems, efforts to build modern roads, airports, power networks and skyscrapers are paying off.
Make that record-breaking skyscrapers. While cities such as Shanghai, Taipei and Seoul vie to have the world's tallest tower, others such as Tokyo are experiencing building booms like few in modern history.
However, swanky cities alone won't ensure a pivotal role in the global economy. It's equally important for market, legal and political frameworks to keep pace with construction projects.
While Tokyo is well ahead of Asia's other big financial centres - Hong Kong, Singapore and Seoul - Tokyo is bumping up against poor corporate governance.
"Japan is a world-class country with the second-biggest economy, and it should have a world-class financial system and corporate governance system as well," Warren Lichtenstein, who controls Steel Partners Japan Strategic Fund, said. Until it does, he said, "there is no way" Tokyo would become a peer of London or New York.
The "Big Bang" of the late 1990s didn't deregulate Japan as hoped. These days, the financial pages are filled with stories of companies concocting "poison pills" to fight off mergers, confusion about the environment in which banks and brokerages operate and poor transparency.
While things are changing, Taku Yamamoto personifies the growing sense of impatience hanging over Tokyo. Yamamoto heads the investment department at Japan's Pension Fund Association, which oversees US$107 billion ($141 billion) of stocks and bonds. The pension manager plans to use annual shareholder meetings to pressure companies.
"We're after the executives who've mismanaged their financial affairs," he said. "We want companies to boost long-run total returns, whether that be by higher dividends, buybacks or expansion."
That is, of course, good news. Japan needs more such shareholder activism, and it's increasing, according to observers such as Kathy Matsui, chief strategist at Goldman Sachs (Japan) Securities.
Prime Minister Shinzo Abe's cabinet also is considering steps to improve things. Kotaro Tamura, vice minister for Japan's Financial Services Agency, yesterday told Bloomberg News that companies need to become "more global".
Yet Japan is late in getting serious about something it should have addressed long ago. Corporate earnings at many Japanese companies are routinely leaked to the media, and only foreigners operating here seem to find anything wrong with that. Even the Bank of Japan's rate decisions often get leaked.
All this is holding Tokyo back. Japan is enjoying its longest expansion since World War II after almost a decade of deflation.
Far from enjoying huge capital inflows, the yen is down 6.6 per cent versus the dollar and more than 12 per cent versus the euro in the past 12 months.
Japan's preference for a weak yen is another reason the country is less than inviting as an investment destination.
Unsteady leadership by BOJ Governor Toshihiko Fukui hardly helps.
These should be heady days in Tokyo. One reminder of that came in a recent survey by the Economist Group, which declared Japan the world's most innovative nation.
Yet China is getting most of the attention in Asia, followed by India. Japan needs to work harder to remind investors it's recovering.
Tokyo is a cautionary tale. It boasts some of the best infrastructure anywhere, globally dominant companies, an educated labour force and prints Asia's only truly international currency. Yet its failure to internationalise its markets means its appeal trails Hong Kong, Singapore and Seoul.
Asian leaders may see gleaming skyscrapers and fancy infrastructure as vital forms of advertising that say, "Hey investors, check us out!" That's all well and good, so long as improvements to financial systems and investment climates keep pace with construction.
- BLOOMBERG
