Investment Horizons in Japan's Economic Transformation

Marc Luet
Citi Country Officer and Japan CEO
Citigroup Global Markets Japan Inc.
Citibank,N.A.,Tokyo Branch

March 2024

Citigroup Inc., a global financial services giant operating in over 160 countries, founded its Japanese subsidiary in Yokohama in 1902. Over the past 122 years, it has played a crucial role in supporting companies around the world amid Japan's rapid modernization. Marc Luet, Citi's Country Officer and Japan CEO, with his extensive experience across Europe, Oceania, and Asia, offers insights into Japan's financial market. In this conversation, Luet discusses the unique aspects of Japan's financial landscape, its business environment, and current investment trends. He highlights Japan's potential as an investment destination, drawing on comparisons with global markets and his broad international perspective.

Luet begins by underscoring Japan's critical role in the global economy, stating, "Japan occupies an important place in the world—and certainly at Citi." Highlighting Japan's unique appeal, he points to its blend of advanced infrastructure, skilled workforce and political stability as key factors that attract foreign investment. "The base building blocks of Japan are attractive. It's a safe environment. The rule of law is very strong," he observes. Expanding on Japan's international presence, from its market influence and cultural impact to strategic partnerships, he adds, "The global reach of its companies is exceptional. This is perhaps more true in Japan than anywhere else in the world."

Delving into the intricacies of Japan's financial market, Luet highlights a confluence of factors that make it an increasingly attractive destination for global investment. He points to demographic shifts, policy reforms aimed at enhancing corporate governance, and shareholder activism as signs of a transformative phase. "There's a feeling that the economy of Japan is growing again, with inflation anchoring changes to the monetary policy that will make it more attractive," he elaborates. "And we're seeing a lot of global interest in Japan. From industrial investment—we've seen a lot of comments around a semiconductor industry revival—to real estate and tourism infrastructure," he adds.

Further, Luet discusses the potential for increased productivity and investment opportunities, driven by this blend of economic reforms and demographic pressures, as well as a strategic shift towards more productive deployment of household financial assets. "There are a lot of commentators talking about the potential for further growth. More importantly, Japanese companies are taking steps to invest their liquidity both here and globally while seeking higher returns. If you take all of this into account, there's a real movement globally to reassess Japan in a totally new way," Luet observes. "I think we all feel it. We're already seeing business opportunities increase, so the momentum is there."

Reflecting on Citigroup's long-standing presence in Japan, Luet speaks to the depth of the bank's commitment, which has spanned over a century. "Yes, 122 years and counting. We're looking forward to the next 100 years," he remarks. This time-tested relationship has not only allowed Citigroup to develop a profound understanding of the Japanese financial landscape, but has also positioned the bank as a key player in supporting the country's economic evolution and integration into the global financial system.

"Our business connects Japanese investors to global financial markets and vice versa," Luet explains. He further elaborates on Citigroup's multifaceted role in facilitating various financial activities, including advisory services, capital markets transactions, and custody and security services. "Across the board, that's how we support our clients," he concludes. "It's quite meaningful for us because they utilize the entire set of products we offer. We remain committed to further developing our activities here."

Luet offers a detailed view on Citigroup's engagement with sustainability and ESG initiatives in Japan, emphasizing the strategic alignment with Japan's sustainability goals, particularly through the GX League, a forum for cooperation between a group of companies, the government and academic institutions to meet greenhouse gas reduction targets and increase industrial competitiveness while contributing to the reduction of emissions. "We made a commitment to one trillion dollars in sustainable finance," Luet states. He continues, "In Japan, not only is ESG a key topic for our clients, but we also wanted to demonstrate commitment to what the country was trying to do and what the government was trying to achieve."

The GX League, as Luet highlights, represents significant part of Citigroup's sustainability efforts in Japan. "That's why when the GX League was formed, we decided to join. It sort of marries our own values as a firm, our commitment to Japan, and what we can help clients achieve; all of that makes sense," he articulates.

Luet offers valuable advice to foreign entities eyeing the Japanese market, emphasizing the importance of leveraging local knowledge and understanding Japan's business culture. "Take advice from people who have been in the country for a while. There are useful and respectable traditions in Japan, such as the consensus approach to decision making. It's worth spending time trying to understand that.” His insights are reinforced by a positive outlook, as he concludes by saying, "We are very bullish on Japan, and I wouldn't be surprised to see more companies attracted to Japan by the opportunities that are plain to see."