As we have been reminded again in the last week, nothing is certain in politics, even in staid old, predictable Japan. Many of the presumptions made in my previous two posts (#2 & #3) about Takaichi Sanae becoming Prime Minister have proven embarrassingly premature. And we probably still have to wait until next week for any meaningful clarity.
But another thread in my recent posts has been that many of the changes underway in Japan are being driven at the level of regulators, exchanges and the ministries, etc – and so are largely independent of who the prevailing prime minister has been - or will be – regardless of their political rhetoric. This is even true, surprisingly, in an area where the rhetoric has become particularly impassioned recently - especially from the prematurely presumptive PM, Takaichi; that against the growing presence (and influence) of mainland Chinese within Japan.
But while this rhetoric may raise concern at the geopolitical level – as this Nikkei Asia article this week argued – I am reminded that the rapid growth of Chinese influence within Japan reflects over a decade of deliberate, successive reforms and initiatives at the institutional and regulatory level towards greater connectivity between the two countries that has belied the public rhetoric of their respective politicians. And, for the most part, this trend looks only likely to continue, and even accelerate.
The institutional reality beneath the rhetoric. For more than a decade now, Japan has widened entry and settlement channels for Chinese mainlanders (among other foreigners) - from the points-based Highly Skilled Professional visa introduced in 2012, to the 2019 Specified Skilled Worker regime, to the 2023 “Designated Activities” pathways J-Skip (for high-income professionals) and J-Find (for top-university graduates). Ironically, the most aggressive of these relaxations were introduced under the administration of the late Shinzo Abe – whose political torch Takaichi claims to carry. The cumulative result of these changes has helped expand the number of foreign residents in Japan to be now almost 4.0 million – within an existent Japanese native population that has declined by over 5 million since 2012. Of those near 4 million foreign residents, Chinese represent the largest cohort, at nearly a million. But as recently profiled in an excellent FT article, this cohort - self-described as “Rùn-ri (润日)” (effectively meaning “Flee to Japan”) - is dominated by aspirational, middle-class Chinese emigres - entrepreneurs, white-collar families, academics – who have openly taken advantage of the eased entry restrictions to move to Japan for lifestyle reasons, and are highly unlikely to be the target of Takaichi’s promised immigration “action” – even if alluded to sometimes in her rhetoric. This cohort significantly contributes not only to Japan’s economy, but also to her image within Asia, and regulators and policy officers with Japan’s bureaucracy know it.
Less visible than the movement of actual people - but just as important - has been the developments towards closer ties between Japan’s and China’s capital markets – again undertaken by regulators and exchanges, not politicians. In April 2019, the Tokyo Stock Exchange (TSE) and Shanghai Stock Exchange (SSE) launched “ETF Connectivity,” soon mirrored with Shenzhen, enabling feeder ETFs that give Chinese investors exposure to Nikkei/TOPIX products and Japanese investors access to CSI- and STAR-linked funds; the scheme has broadened since 2021. The regulatory rails have extended beyond cash equities: in 2022 JPX and the China Financial Futures Exchange signed an MoU to deepen cooperation in index derivatives, and in May 2025 Osaka Exchange listed Shanghai Natural Rubber Futures, a cash-settled contract licensed from the SHFE benchmark -putting a Chinese commodity price directly onto a Japanese venue. The Japan-China Capital Markets Forum, convened by the FSA, JPX and their Chinese counterparts in 2019/2021/2022, provided the policy dialogue underpinning these developments. Indeed, Japan’s Financial Services Agency (FSA) has been a driving force. Beijing’s tight outbound controls - a US$50,000 annual FX cap for retail, while institutions rely on SAFE-allotted QDII quotas –significantly hinder the operation for these cross-border instruments etc. But earlier this year, in July, FSA adviser Satoru Shibata publicly urged Beijing to expand its QDII quotas so mainland investors can put more money into Japan-equity ETFs – while calling for a resumption of the annual Capital Markets Forum to accelerate the pace of further reforms.
But despite the many remaining hurdles, the direction of change seems clear. Whoever becomes prime minister next week, and despite the reactionary rhetoric, it is hard to see these channels for movement of both people and capital closing; the more realistic expectation is for continuation of such trends, and thus an increasingly larger, more visible role of not just Chinese people in Japan, but also Chinese capital in Japan’s markets. The huge potential impact of the latter should be of particular focus for investors in Japan over coming years.
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