By Makiko Yamazaki

Japanese Prime Minister Fumio Kishida aims to spur competition in the country's $5 trillion asset management industry by prompting new market entrants to turn dormant household savings into investments, he told investors in New York.

The Japanese government is reviving its decades-old policy pledge to move 2,000 trillion yen ($13.48 trillion) of household financial assets into investment, as half of such assets are sitting in cash or bank deposits.

"We will push hard to encourage sophisticated asset management and to solicit new entrants," Kishida said in a speech at the Economic Club of New York that was also broadcast online.

Funds in the Japanese asset management sector have risen by 50% over the last three years to reach 800 trillion yen, but there is more to be done, Kishida said.

Healthy competition in the asset management industry is meant to create a virtuous circle in which higher investment returns for households translate into higher spending and corporate profits.

The industry is dominated by those affiliated with large banks and brokerage houses, which Japan's financial regulator said could hinder resources and product governance.

"To start with, we will rectify Japan's unique business practices and resolve barriers to entry, and will also introduce a new program to assist new entrants," Kishida said.

Reform measures include introducing regulatory flexibility to allow small asset managers to outsource their back-office operations, as well as launching special business zones where administrative procedures can be completed solely in English, he said.

Regulator the Financial Services Agency said the government is also considering promoting "emerging manager programmes," whereby pension funds or endowments allocate a certain amount of their portfolio to be invested in emerging managers.

The latest steps supplement other policy measures, including an expansion of a tax-exempt investment programme for individual investors.

The government has for years failed to bring about a change in investment habits, but industry sources say the world's third-largest economy is starting to see early signs of sticky inflation that would make keeping cash less attractive.

"I would urge you to evaluate what we are doing in my country, look at the underlying strength of our economy and our plans for the future and then invest in Japan," Kishida said.

($1 = 147.9100 yen)

(Reporting by Makiko Yamazaki in Tokyo; Editing by Jane Merriman, Chris Reese and Barbara Lewis)