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Categorized | Banks, Currencies

JBA head predicts spike in overseas buys

Posted on March 31, 2016

Takeshi Kunibe, President and Chief Executive Officer of Sumitomo Mitsui Banking Corporation, at its company headquarters, for Michiyo Nakamoto's story. 05/24/2011

Takeshi Kunibe

The new head of the Japanese Bankers’ Association is predicting a spike in overseas acquisitions as Japanese companies are prodded into an “aggressive mindset” by the country’s negative interest rate policy (Nirp).

The country can also expect a Nirp-driven increase in domestic consolidation in the banking industry and beyond as Abenomics — the package of policies under prime minister Shinzo Abe intended to definitively break the economy free from deflation — enters a “critical phase”.

    The comments by Takeshi Kunibe — who is also president of Sumitomo Mitsui Banking Corporation, Japan’s second-biggest financial group by assets — come as he takes over on Friday as chairman of the influential JBA.

    He does so in what is arguably the organisation’s most turbulent year for more than a decade, as new banking laws are debated and the JBA’s 64 members accelerate consolidation talks that have produced three separate mergers over the past couple of months.

    Headwinds have been strengthened by the Bank of Japan’s decision on January 29 to introduce Nirp to the world’s third-biggest economy. That has hit banking shares hard, and highlighted the challenges of a sector feeling the squeeze of Japan’s ageing demographics.

    “The timing of the Nirp announcement was when the global economy was still risk-off . . . which means that the effect of Nirp has been weakened, but it should eventually stimulate consumption,” Mr Kunibe said.

    He said that in the short term, negative rates would hit an industry where deposits surpass loans and in which banks hold large volumes of Japanese government bonds. The yield on the benchmark 10-year JGB has turned negative under Nirp.

    Over the longer term, according to Mr Kunibe, there “will eventually be a positive impact”.

    He said his main focus as JBA chairman would be the effort to generate demand for loans. “I have been talking to CEOs, and the ones who were considering capital expenditure and investment in M&A are willing to be more aggressive following the introduction of negative rate policy. There are quite a few CEOs with this mindset,” Mr Kunibe said.

    Japanese Government Bond yield hits record low

    Pedestrians walk past a stock prices board showing numbers of the Tokyo Stock Exchange in Tokyo on February 2, 2016. Tokyo shares opened lower February 2 as oil prices resumed their drop and after a weak lead from financial markets in Europe and on Wall Street. AFP PHOTO / KAZUHIRO NOGI / AFP / KAZUHIRO NOGI (Photo credit should read KAZUHIRO NOGI/AFP/Getty Images)

    Investors show frustration with NIRP and faltering Abenomics growth programme

    By some indications, Japanese companies have already turned aggressive, with 2015 a record year for Japanese outbound M&A in terms of yen value, according to Dealogic.

    But Japanese companies are realising with ever greater urgency that they must push beyond their shrinking home market, Mr Kunibe said. Companies’ efforts to “firmly establish themselves in global markets” will require more outbound acquisitions, he said, while domestically, companies in all sectors will defend themselves with consolidation.

    Japan’s parliament is expected to approve, by this summer, banking law revisions designed to update an industry that has been slow to introduce cutting-edge financial technologies employed elsewhere in the world. The proposed legal changes would allow Japanese banks to invest directly in IT and financial technology companies.

    Despite the prolonged Abenomics campaign to convince Japanese households to shift from savings deposits into investment, banks have largely failed to prompt that leap of faith.

    The current market condition — in which the yen has climbed sharply against the dollar since January while Japan’s main Nikkei 225 stock average has shed more than 10 per cent — was described by Mr Kunibe as “non-transparent” and, he said, could make it even harder to convince Japanese to take on more risk.

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