Ratification of the Trans Pacific Partnership will present sustained opportunities for foreign asset managers to capitalize on a resurgent Japan.
Structural reform, the third arrow of Prime Minister Shinzo Abe's strategy to revitalize the Japanese economy, has yet to hit its mark, even as Japan's equities have rallied more in 2015 than at any time in the past 15 years. However, as the approval process of the Trans Pacific Partnership accelerates, asset managers should be ready for that third arrow to strike and set in motion a sustained transformation of the Japanese economy over the next decade.
Consisting of 12 Pacific Rim nations, the TPP is poised for comprehensive integration and will touch most areas of economic life by:
- lowering or eliminating tariffs on goods and services, opening long-closed industries to competition;
- liberalizing the service sectors;
- eliminating non-tariff barriers to trade within signatory nations;
- creating new export markets for signatory nations' products;
- increasing bilateral foreign direct investment; and
- paving the way for new rules on intellectual property rights among signatory nations.
The Peterson Institute predicts the TPP will lower agricultural tariffs and other internal barriers to competition, resulting in an 18% increase in Japan's exports. Trade privileges with the other 11 members of TPP will also attract foreign direct investment and translate to an estimated 2% increase of Japan's annual GDP.