Japan has a poor record in recent years with fiscal reform, hence there must be considerable doubt about any positive effects on the economy from recent measures. Consumer confidence in Japan remains weak, and exports are being limited by the high value of the yen. Although its economy has now been overtaken by China, Japan’s influence on the global economy remains significant but largely negative. For Islamic finance, the effect of changes in Japanese economic activity is marginal. Japanese banks have little involvement in Islamic finance and there is virtually no local Muslim population. Oil imports from the Gulf are stagnant, and Japanese companies involvement in Malaysia remains limited. There has been some interest in Islamic finance in Japanese universities, notably Kyoto, with which we have hosted joint conferences, but the commercial interest in Islamic finance is largely absent.
PROFESSOR RODNEY WILSON
With the Muslim population and wealth growing, investors are looking for diversification globally. Islamic finance is a growing alternative for many Muslims, and countries who are willing to change laws to accommodate will achieve first market mover advantage. In recent times we have seen General Motors bond holders in the US having bonds reduced to close to nil. Investors prefer Sukuk bonds with and asset- backed nature and a recourse to a fixed asset. Historically, Sukuk is purchased mostly by conventional institutions, but there have been significant purchases from Muslim investors due to its compliant structure. The industry welcomes the changes Japan is making and has it as a model for other countries to adopt. OMAR KALAIR President and CEO, UM Financial Canada
As part of the tax reform proposals, the Japanese ministry of finance is considering the introduction of specific measures that would facilitate Islamic financial instruments to be treated in the same way as other financial instruments from a tax perspective. One of the measures considered is to allow for the setting up of special purpose trusts to ensure that foreign investors do not incur Japanese tax. When introduced, these measures will make it more attractive for foreign investors to invest in Japan in a Shariah compliant manner, which is not only beneficial to the Japanese economy, but also provides additional diversification benefits to investors. Given the global importance of the Japanese economy, this will provide yet another possibility to build global, well diversified portfolios and potentially additional liquidity instruments. DR NATALIE SCHOON Head of product research, Bank of London and the Middle East
|