Introductory remarks and acknowledgements
Ladies and gentlemen, let me begin by extending my warm thanks to the Australia Japan Business Cooperation Committee for inviting me to speak.
I would particularly like to acknowledge the work of Takashi Morimura, Deputy President and Group CEO, Global Banking, The Bank of Tokyo-Mitsubishi UFJ, Geoff Lloyd, in his capacity as Deputy Chairman of the Financial Services Council, Sally Loane, Chief Executive Officer of the Financial Services Council, and Bob Seidler AM, Vice President of the Australia Japan Business Cooperation Committee.
I’m delighted to be here with you today, away from home, but in a country that has been a long-time friend of Australia and a remarkable nation in its own right.
Australia’s economic story cannot be told without a very large chapter dedicated to our long friendship with Japan — one that, without doubt, has brought great benefits to both countries.
The success of the relationship is no accident. It has succeeded because it is founded on shared values, respect and, importantly, maintained through open and honest communication.
This is a credit to successive Australian and Japanese governments; the outstanding work of bodies such as the Australia Japan Business Cooperation Committee and its Japanese counterpart; and the fondness and respect that our citizens have for each other.
I have been a long-time supporter of our strong relationship and today I would like to share with you some of my own thoughts on the history of this relationship and how we can further extend it through increased engagement in financial services.
Japan-Australia: a special relationship
The modern day Japan-Australia relationship was forged by two visionary political leaders – Australia’s longest serving Prime Minister, Sir Robert Menzies, and the grandfather of Japan’s current Prime Minister, Prime Minister Nobusuke Kishi.
In 1957, Sir Robert became the first Australian Prime Minister to visit Japan. Quite clearly the two leaders became instant friends as three months later they signed a historic commerce agreement.
Back home in Australia, there was fierce opposition to this signing. But Sir Robert was a man of foresight, seeing the potential friendship that could grow.
In welcoming Prime Minister Kishi to Australia’s capital, Canberra, that same year, Menzies said:
“… Japan is to be a great power in a community of great powers … We believe Japan has an important part to play, first in the Pacific and in the world, and we believe most sincerely that part will be played in friendliness and in harmony with Australia …”
History now tells us that these were prophetic words, which foreshadowed amazing achievements to come.
For Japan, our relationship hastened post-war redevelopment.
For Australia, we gained a vital economic, strategic and political partner.
Less than a decade after signing the agreement, Japan was Australia’s largest export market — a position it held until 2009.
Japan is still Australia’s second-largest customer, with exports worth $72.2 billion in the 2013–14 financial year.
Similarly impressive is the $174 billion of Japanese investment flowing into Australia, our fourth-largest source.
This figure highlights a tradition of strong Japanese investment, particularly in Australia’s financial services sector.
In 1989, Tokyo-based Nikko Asset Management launched an Australian arm, which today holds $25 billion of the $211 billion in funds under the company’s management.
In 2011, Dai-ichi signalled its confidence in Australia’s financial sector with a $1.2 billion takeover of Tower Australia Group (now TAL).
And in 2012, Mitsubishi UFJ Financial Group secured a $500 million strategic alliance with AMP Capital Investors.
These are just a few examples from a very long list of successful events, and an indication of the strong level of confidence in our relationship.
Ahead of the last Australian election, I wrote an opinion piece in an Australian newspaper noting that the Japan relationship presented a “huge and historic” opportunity.
As we have seen since the election, the Australian Government has embraced this opportunity, with last year being one of particular highlights.
Last year, Australia twice hosted Prime Minister Abe, while Prime Minister Abbott visited Japan within six months of being elected.
This is a reflection of the close bond between the leaders of our two great countries.
There was also the signing of the Japan–Australia Economic Partnership Agreement and the recent decision by Japan Post to take over Australia’s Toll Holdings.
These recent events show a continued confidence in our relationship and a desire to see it furthered.
The Australian Government knows that a strong and confident Japan is good for Australia, good for our region, and good for the world.
We all know of Japan’s willingness to embrace economic reform. The ambitious steps Japan is taking with ‘Abenomics’, in particular, addressing pension and aged care reform, is a clear example of this.
Of course, a strong Australian economy is also good for Japan.
The Australian Government’s economic plan is very focused on jobs, growth and opportunity.
We are, as Treasurer Joe Hockey recently said, successfully navigating what is a difficult transition from a mining investment boom to broader-based growth.
This is why our recent Budget focused on empowering small business, supporting jobseekers, and investing in the infrastructure of the future.
It’s also why we are addressing our own challenges of an ageing population with reforms to our pension system, while closely considering the recommendations of a recent holistic inquiry into our financial system to see where it can support further and greater economic growth.
Opportunities for both countries
One particular area where I believe we can extend our relationship is through increased engagement in financial services.
With this in mind, there are three areas that I would particularly like to address today.
i) Japan–Australia Economic Partnership Agreement
It was at the first Australia–Japan Conference in Sydney in 2001 that former Australian Prime Minister John Howard spoke of the importance of trade to our nations. He said:
“The collective responsibility we all hold, in government and in business, is to convince people of the advantages of open trade and to effectively communicate that benefits are attainable for both developing nations and those like our own.”
I had the privilege of being able to work for the then Prime Minister Howard and I too subscribe to this powerful statement.
Thirteen years later, we again embraced the benefits of open trade with the signing last year of the Japan–Australia Economic Partnership Agreement.
This agreement includes major wins for both nations. In particular, it was a major development for both our financial services industries.
Under the agreement, our nations will allow financial services providers to supply services that, in the past, were restricted to domestic financial institutions.
Notably, Australian financial services providers will enjoy treatment on par with Japan’s domestic providers — an outcome that is among the best Japan has ever agreed with a trading partner.
These are the types of opportunities I have long believed our relationship was capable of creating, and I encourage Australian and Japanese businesses — the many here in this room — to take advantage of this new platform.
ii) Australia’s funds management sector
A key example of Australia’s success in financial services is our superannuation system.
It is now worth more than $2 trillion – more than 120 per cent of Australia’s Gross Domestic Product. By 2040, it is expected to reach a staggering $9 trillion.
Indeed, Australia has the fourth largest private pension assets pool in the world, behind only the United States, Japan and the United Kingdom.
It is a system that is improving retirement incomes, and delivering real returns over time.
However, even though Australia has $2.6 trillion in total funds under management, only around 3.5 per cent of that figure is managed on behalf of foreign investors.
I have great confidence in our funds management system, and I believe Australia’s success in funds management presents significant opportunities for Japanese savers looking for investment opportunities.
Similarly, I believe that Australian financial service providers can benefit from the expertise of Japanese financial firms — particularly given their experience in responding to an ageing population.
This underscores why the Australian Government has prioritised its relationship with Japan and the broader region and clearly points to more opportunities that can and should be embraced in the years ahead.
iii) Asia Region Funds Passport
The Australian Government is also a passionate advocate for the creation of the Asia Region Funds Passport.
In an increasingly globalised world, it is more important than ever that our region is connected.
An APEC initiative, the Asia Region Funds Passport, will create a regional market for managed investment funds by reducing regulatory barriers and creating a standard set of rules for funds managers.
I see this as a significant proposal for increasing engagement in the financial services sector in our region and an effective initiative to increase our competitiveness.
The Passport will mean a fund that is registered domestically in, for example, Singapore, can be offered in other participating countries without needing to meet additional operational and licensing requirements.
This will provide fund managers with the opportunity to boost their presence in Asia, give investors more choice, and further expand capital flows across the region.
It will also promote jobs, with a recent study by APEC suggesting it could see the creation of 170,000 jobs across Asia.
The passport is expected to commence in 2016, and already there are six nations — including Australia, New Zealand, Korea and Singapore — participating in a working group to finalise details before September this year.
I am pleased to see that the Japanese Financial Services Authority (JFSA) conducted public consultation on the Passport last year.
I am also pleased that the JFSA has been working closely with the Asia Region Funds Passport Working Group on designing the Passport’s operational rules.
We are delighted at the progress that has been made in implementing this initiative, progress that has been greatly benefited from the JFSA’s contribution.
I would strongly encourage the Japanese Government and the industry champions here now, to carefully consider the enormous opportunities the passport can offer.
For Japanese fund managers, it would mean access to 250 million people across six economies — all of whom would benefit from your knowledge and expertise.
It would also align with the Japanese Government’s efforts to mobilise Japanese capital and enhance long-term competitiveness for the funds management industry and related services sector.
And, of course, the inclusion of Japan, the world’s third largest economy, would elevate the Passport into a globally significant agreement.
In conclusion, Australia and Japan have a truly envious relationship.
Prime Ministers Menzies and Kishi recognised the potential of this relationship at a time when others doubted it. For their leadership, we remain indebted.
We may have different cultures and different histories. But together we are an example to the world of how a great friendship between nations can form and prosper.
As Australian Prime Minister Abbott said last year, our friendship is one of “trust, good faith and confidence”.
With such a strong bond, there are many more opportunities for our friendship to be furthered, no more so than within our respective financial services sectors.
With this in mind, I would encourage you all to seek out deeper engagement with your counterparts to gain the most from this friendship, and to also help further its growth.
Thank you very much.