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Remarks at the Harvard Law School Program on International Financial Systems, 2023 Japan – U.S. Symposium

Nagano Prefecture, Japan

Nov. 17, 2023

Thank you for the introduction, John [Gulliver].  It is a privilege to share the keynote address at the 26th annual Japan – U.S. Symposium with Vice Minister Shigeru Ariizumi from the Financial Services Agency.[1] 

My first visit to Japan was as a high school student in 1987.  At that time, the notion of “Japan Inc.” was common in the United States and there was a sense that Japan had no limit on its future growth.  My second visit to Japan was seventeen years later in 2004 as part of a delegation led by Irene Hirano Inouye, who would later found the U.S.-Japan Council.  By that time, Japan’s bubble economy had long since vanished and the concerns over Japan’s economic future and its increasingly aging society permeated the discussions instead.  In fact, one of my briefers for that 2004 trip is here today — Glen Fukushima, a long-time U.S. expert on Japan’s business environment with whom I now work in his role as vice chairman of the Securities Investor Protection Corporation.

Since joining the Securities and Exchange Commission in 2006, this trip is my third official government visit to Japan — if you exclude the 10-hour layover last year at Narita. I have previously accompanied prior SEC Commissioners on trips to Japan for the simple fact that the relationship between our two countries is important to the global capital markets.

This sentiment should come as no surprise.  Japan and the United States share a number of common values, including “the preservation and promotion of political and economic freedoms; support for human rights and democratic institutions; and, the expansion of prosperity for the people of both countries and the international community as a whole.”[2]  I share the views of Secretary [of Treasury Janet] Yellen, who said on Monday at APEC that the “Asia-Pacific region is at the center of the global economy” and we collectively seek “to achieve our shared vision of an open, dynamic, resilient, and peaceful Asia-Pacific community.”[3]

Today, I will discuss the interconnections between the U.S. and Japanese capital markets, with a focus on the role that regulators can play in maintaining the strength of those markets.

Interconnectedness of U.S. and Japanese Capital Markets

The links between the U.S. and Japanese economies are numerous.  Japanese investors comprise the single largest block of holders of U.S. Treasuries outside of the United States.[4]  Additionally, Japan is the largest source of foreign direct investment into the United States.[5]  Japanese banks, which traditionally have had strong lending relationships with U.S. customers, are positioning themselves to enter the U.S. investment banking market.[6]

This relationship is two-directional.  In 2022, U.S. private equity firms invested more than $13 billion in Japanese companies, up from roughly $8 billion in 2021.[7]  Japanese public companies also have attracted the interest of U.S. investors.

The U.S. and Japan stand to benefit greatly from their economic ties.  A nation with a strong economy can provide both financial and national security to its citizens.[8]  A strong economy also enables a nation to build upon shared interests with like-minded countries.[9]  Participants at last year’s Japan – U.S. Symposium discussed Russia’s invasion of Ukraine, noting that the resulting war was “was a hugely consequential event in political, economic, and human terms.”[10]  Participants wondered whether Russia’s invasion might embolden other countries to launch similar campaigns, noting the political and economic implications of such a scenario.[11]  One year later, the war in Ukraine remains ongoing and a new war in the Middle East threatens both regional and global stability.

Measures that Can Strengthen Capital Markets

In 1991, then-SEC Chairman Richard Breeden remarked that “promoting the growth of the capital markets is an essential ingredient in achieving broad-based economic growth in each individual country and on a global basis.”[12]  As of 2019, the U.S. had the largest capital market in the world, with over 40% of total capital market activity.[13] Japan had the fourth largest capital market, with nearly 5% of total capital market activity.[14]  These numbers do not reveal the full picture, though. The U.S. economy accounts for 26% of global GDP, while the Japanese economy accounts for 6.5% of global GDP.[15]  This means that U.S. capital markets are relatively larger than total GDP, while Japanese capital markets are slightly smaller.

One factor that might explain this disparity is that U.S. households appear to have higher tolerances for risk and invest approximately 39% of their assets in the capital markets, while maintaining only 13% of their assets in bank deposits.[16]  On the other hand, Japanese households invest only 11% of their assets in the capital markets and maintain 54% of their assets in bank deposits.[17]  Thus, as many American investors are increasing their exposure to Japanese companies, Japan’s own citizens participate less.  

A few practical measures could potentially foster cross-border capital formation between the U.S. and Japan while also providing opportunities for increasing domestic investment within Japan.  One such measure could be agreements between exchanges that facilitate dual listings.  For example, the Singapore Exchange announced in 2022 that it had entered into an agreement with the New York Stock Exchange that will provide for the dual listing of companies on both exchanges.[18]  Without such an agreement, a company might be hesitant to list on more than one exchange, since a company must otherwise comply with the rules of each exchange on which it is listed. 

Dual listings of Japanese companies on the Tokyo Stock Exchange and a U.S. exchange have dwindled in recent years, and Japanese start-ups appear to be looking to the Nasdaq Stock Market as the exclusive venue for listing their shares.[19]  According to one source, five Japanese start-ups have listed on the Nasdaq Stock Market this year, and dozens more are preparing to list on that exchange in the coming years.[20]  The listing of Japanese companies on U.S. exchanges is a testament to the strong economic ties between our two nations.

Market forces are likely the primary driver behind current listing trends, with companies able to obtain higher valuations and more liquidity by tapping the U.S. market.[21]  A sensible framework that promotes dual listing could potentially encourage Japanese companies to list their shares in the U.S. and at home, which would at least make these investment opportunities more readily available to Japanese citizens.  Coupled with efforts by the Japanese government to increase household participation in the stock market, the ratio of savings to investments could begin to shift.

Another measure worth exploring is the concept of mutual recognition.  Under a mutual recognition regime, foreign financial firms could provide services to U.S. investors without complying with the full range of applicable U.S. rules, so long as the firms are subject to a securities regulatory regime that is substantially comparable to that of the United States.  The same would be true of U.S. financial firms providing services to foreign investors.  Mutual recognition agreements can facilitate cross-border market access more efficiently than other types of arrangements, such as multilateral arrangements, which rely on supranational institutions for their implementation.[22]  Additionally, these arrangements are voluntary and selective, so they might facilitate cross-border capital formation without sacrificing regulatory autonomy.[23]

Under Chairman Christopher Cox, the SEC hosted a roundtable discussion on mutual recognition[24] and then, in 2008, announced a series of actions that were intended to further the implementation of mutual recognition for “high-quality regulatory regimes in other countries.”[25]  Unfortunately, the global financial crisis in 2008 caused the idea to stall, and the SEC has not resumed its attempts to establish mutual recognition arrangements. Perhaps it is time to resume thinking whether such an approach is warranted. 

One sensible way to strengthen the economies of the U.S. and its allies is to ease the flow of capital between countries.  With increased U.S. investor demand for Japanese equities, and increased listing of Japanese companies on U.S. exchanges, it is worth exploring whether there are avenues for cutting regulatory red tape while still affording investors the protections that they have come to expect in their home countries.

Avoiding Regulatory Mission Creep

Aside from the issue of cross-border capital formation, securities regulators in individual jurisdictions can promote healthy capital markets by ensuring that any regulatory requirements are relevant to one key factor: financial materiality.  In the United States, boards of directors have a fiduciary duty to act in the best interest of the corporation, and disclosure-based requirements are evaluated in terms of whether the information is relevant to an investment decision from a financial perspective. 

In December 2022, Japan’s Financial Services Agency (“FSA”) finalized a code of conduct for ESG evaluation and data providers (the “Code”).[26]  An appendix to the Code includes recommendations to institutional investors that use ESG ratings.[27]  Under these recommendations, it is important that investors “publicly clarify how ESG evaluation and data is used in investment decisions.”[28]  In this regard, institutional investors should “disclose how they consider ESG in their investment, as well as their approach on their use of ESG evaluation and data for investment.”[29]  This disclosure would purportedly be used by companies to “gain a concrete understanding” of the business benefits that would result from improved ESG ratings.[30] 

One concern with the use of ESG ratings is that there are different approaches to analyzing and weighting ESG factors.  ESG ratings can often reflect the particular social policy views of the ESG ratings provider.  Without tying such factors to financial return, it raises questions as to who are the intended beneficiaries of these ratings — the investors in the company or other third-parties that do not have anything at stake? 

Social issues are often best addressed through legislative actions rather than by corporate boards and executives.  This is even more important when the social issue being discussed is the subject of great disagreement.  Thus, a system in which company management focuses primarily on obtaining favorable ESG ratings hands a great deal of power to the entities issuing those ratings.  To the extent that a company acts in a manner that places the interests of investors subservient to private ESG interests, investor confidence can be diminished.  If investors cannot expect that a company will seek to maximize its value, then they may choose to not invest at all.    


There appears to be an appetite in Japan for increasing household participation in the stock market.  One way to continue such trends is to provide sufficient assurance, through disclosure or other tools, that a company’s board and management is acting in a fiduciary manner to shareholders.  Such policies can be further helpful in attracting foreign investors to the Japanese stock markets. 

In a 1986 Memorandum of Understanding between the SEC and the Japanese Ministry of Finance, the parties proclaimed their expectation that “the interaction of the Japanese and United States securities markets will continue to grow.”[31]  This, the parties stated, “is a positive development that should be encouraged.”[32]  Nearly 40 years later, the relationship between the U.S. and Japan is strong, and that strength is reflected in the interconnectedness of our economies.  Financial regulators in both countries should continue to pursue sensible policies that will further drive economic growth.  The success of our capital markets can lead to broader prosperity and security in the region.

Thank you.  ご静聴ありがとうございました。


[1] These remarks reflect my individual views as a Commissioner at the SEC and do not necessarily reflect the views of the full Commission or my fellow Commissioners.

[2] See U.S. Relations With Japan, Bilateral Relations Fact Sheet, U.S. Department of State (Jan. 21, 2020), available at

[3] See Remarks by Secretary of the Treasury Janet L. Yellen at Opening Session of APEC Finance Ministers’ Meeting in San Francisco, California (Nov. 13, 2023), available at

[4] See Hawkish Tone in Japan Is All It Takes to Rattle Global Markets, Bloomberg (Jul. 27, 2023), available at

[5] See Japan – Country Commercial Guide, International Trade Administration (Nov. 4, 2022), available at h

[6] See Japan's top lenders in fresh drive to win US investment banking deals, Reuters (Jul. 3, 2023), available at

[7] See US private equity investment in Japan surges in 2022, S&P Global Market Intelligence (Feb. 7, 2023), available at

[8] See, e.g., Economics and National Security: Issues and Implications for U.S. Policy, Congressional Research Service (Jan. 4, 2011), available at

[9] Id.

[10] See Final Report – Symposium on Building the Financial System of the 21st Century: An Agenda for Japan and the United States (Dec. 2022), available at

[11] Id.

[12] See Remarks of Richard C. Breeden to the International Organization of Securities Commissions (Sept. 24, 1991), available at

[13] See The New Financial Global Capital Markets Growth Index, Global Financial Markets Association (Jan. 2019), available at

[14] Id.

[15] Id.

[16] See America’s Billionaires Love Japanese Stocks. Why Don’t the Japanese?, Wall Street Journal (Sept. 24, 2023), available at

[17] Id.

[18] See Singapore Exchange, NYSE join hands for company dual listings, ETFs, CNBC (Jul. 21, 2022), available at

[19] See Nasdaq Attracts Record Number of Japanese Startups Seeking IPOs, Bloomberg (Oct. 1, 2023), available at

[20] Id.

[21] Id.

[22] See Jennifer G. Hill, Cooperation in Securities Market Regulation: Perspectives from Australia, Columbia Law School’s Blog on Corporations and the Capital Markets (July 13, 2020), available at

[23] Id.

[24] See SEC Announces Roundtable Discussion Regarding Mutual Recognition, Securities and Exchange Commission (May 24, 2007), available at

[25] See SEC Announces Next Steps for Implementation of Mutual Recognition Concept, Securities and Exchange Commission (Mar. 24, 2008), available at

[26] See The Code of Conduct for ESG Evaluation and Data Providers, Financial Services Agency (Dec. 2022), available at

[27] Id. at 38.

[28] Id.

[29] Id.

[30] Id.

[31] See Memorandum of Understanding between SEC and Japanese Ministry of Finance (May 23, 1986), available at

[32] Id.

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