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Shifts in the Japanese Economy and the Potential Impact on EU Japan Investment: Insights from the...
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Shifts in the Japanese Economy and the Potential Impact on EU Japan Investment:
Insights from the Financial Sector
Vice-Chairman, International Bankers Association of Japan, Chief Country Officer, BNP Paribas Japan Group,
& CEO and Representative Director, BNP Paribas Securities (Japan) Limited
Philippe Avril
Fifth EU Asia Top Economist Round Table EU Japan Economic Forum
Tokyo, 14 November 2014
2
1. Japanese Financial Markets: Size Matters
2. Business Environment: Financial Regulations
3. Increase in cross-border flows
Contents
3
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
USA China Japan GermanyFrance UK Brazil Russia Italy India
USD bln
Source: IMF World Economic Outlook database
GDP : Top 10 countries in 2013
Japanese Financial Markets: Size Matters
4
Japanese Financial Markets: Size Matters
Household sector- Financial assets
Source: BOJ, BNP Paribas
JPY trillion
As of March end of each year
5
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
NYSE NASDAQ JapanExchange
Group
Euronext HKExchange
Shanghai SE TMX Group DeutscheBörse
SIX Swiss ShenzhenSE
USD bln
Source: World Federation of Exchanges
Stock Exchange: Market Capitalisation (as of June 2014)
Japanese Financial Markets: Size Matters
6
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
NYSE NASDAQ JPX Shenzhen SE Shanghai SE Euronext Deutsche Börse HK Exchange TMX Group Korea Exchange
USD mln
Source: World Federation of Exchanges
Stock Exchange Turnover: Value of Share Trading (YTD June 2014)
Japanese Financial Markets: Size Matters
7
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
USA Japan Italy UK France Germany
USD bln
Outstanding balance of government bonds (as of October 2014)
Source: Bloomberg
Japanese Financial Markets: Size Matters
0
200
400
600
800
1,000
1,200
1,400
GPIF GPF Norway ABPNetherland
NationalPension
South Korea
FRT US CPE US Canada P NSS China CPFSingapore
PFZWNetherland
8
Japanese Financial Markets: Size Matters
USD blnTop 10 Pension Funds in the world
Source: Pensions & Investments / Towers Watson 300 analysis
9
Japanese Financial Markets: Size Matters
Monetary base
146 trn(Mar. 2013)
202 trn(end 2013)
275 trn(end 2014)
0
50
100
150
200
250
300
350
400
09 10 11 12 13 14 15
Projection
Source: BOJ, BNP Paribas
JPY trillion
10
Business Environment: Financial Regulations
Considerably improved over the last few years: “Better Regulation” initiative
Perceived strong commitment from Japan to global agreements and international coordination
Broad thinking alignment between European and Japanese financial regulators / European and Japanese financial institutions
Constructive dialogue between foreign financial institutions and Japanese financial regulators on continuous improvement of regulatory environment
11
Increase in cross-border flows
EU36%
North America33%
Central and South
America19%
Oceania4%
Others8%
Investment in Foreign Bonds
Source: BOJ
2013(JPY trillion)
Total: JPY 284 trillion
12
Increase in cross-border flows
0
5
10
15
20
25
30
35
40
45
197
1/3
197
3/3
197
5/3
197
7/3
197
9/3
198
1/3
198
3/3
198
5/3
198
7/3
198
9/3
199
1/3
199
3/3
199
5/3
199
7/3
199
9/3
200
1/3
200
3/3
200
5/3
200
7/3
200
9/3
201
1/3
201
3/3
201
5/3
Foreign investors Retail (individual + trust funds)
%%
Ownership ratio (Foreign investors and Retail) of listed stocks
Source: Tokyo Stock Exchange
13
Increase in cross-border flows
Source: MARR
Target for Outbound M&A transactions
Number of Outbound M&A transactions
2011 2012 2013
455 transactions 515 transactions 499 transactions
96
123
83
60
5529
9
112
18478
56
55 246
116
14799
73
301915
14
Rank Announced date Target name Acquirer nameDeal value
(US$m)
1 24 Sep, 2013 Tokyo Electron Ltd Applied Materials Inc 6,986
2 2 Jul, 2013 Bank of Ayudhya PCL Bank of Tokyo-Mitsubishi UFJ 5,315
3 26 Sep, 2013 Grohe AG
LIXIL Group Corp /
Development Bank of Japan Inc.
* BNPP acted as FA to LIXIL
3,959
4 11 Jun, 2013 Hitachi-Thermal Power Business Mitsubishi Heavy Industries-Thermal Power Business 3,277
5 19 Feb, 2013 Robeco Groep NV ORIX Corp 2,593
6 9 Sep, 2013Lucozade and Ribena business
(GlaxoSmithKline PLC) Suntory Beverage & Food Ltd 2,119
7 27 Sep, 2013 Panasonic Healthcare Co. Ltd. Kohlberg Kravis Roberts & Co. L.P. 1,677
8 29 Nov, 2013 Thyssenkrupp Steel USA LLC Nippon Steel & Sumitomo Metal Corp / Arcelor Mittal 1,550
9 15 Oct, 2013 Supercell OySoftbank Corp. Japan / GungHo Online Entertainment
Inc.1,530
10 26 Apr, 2013 Sumikin Bussan Corp Nippon Steel Trading Co Ltd 1,388
N.B. Japan related announced transactions, Outbound transactions in green Source: Thomson Financial, BloombergStock buy-backs, Inter-group reorganization not included
Increase in cross-border flows
15
Increase in cross-border flows
Further potential
Impact of Japanese monetary policy: growth of foreign investment• Financial institutions: asset diversification (e.g. GPIF)• Individual savings: escape from negative real interest rates• Direct investment by Japanese corporations: strategic imperative of
foreign development
Impact of public finances• New financing methods required for public/private projects
(e.g. infrastructure)
Impact of growth strategy?