Japan in the Global Capital Markets 2017
International investors are recognising the progress that Abenomics has made in turning around Japan’s recently moribund economy. The long-awaited acceleration in domestic demand is finally taking place, while business confidence is high. But can this progress be maintained while inflation and government finances remain weak and North Korea pushes the region towards conflict?
Although the dynamics of the basis swap can make the yen market a volatile source of funding for international borrowers, the arguments for accessing it are compelling.
Despite disappointing volumes this year, from both a supply and a demand standpoint, the arguments for issuing in Pro-Bond format are as relevant as they have ever been and the longer‑term outlook for the market remains healthy. TLAC and MREL capital issuance could be particularly heavy — and lucrative.
While Japan remains the world’s largest creditor, its investors are not making much of an impact in the euro and dollar SSA bond markets. Instead, they are making their presence felt in Australian dollars and, as ever, the Uridashi market.
Japan’s banks have passed the stability test. Now their challenge is to build up profits — a difficult task when considering negative interest rates and ultra-thin lending margins.
Japanese retail investors have been keen buyers of ‘themed’ or ESG (environmental, social and governance) bonds for many years, and institutional investor appetite for green or socially responsible issuance is now growing rapidly. This is creating a wealth of opportunities for international and local issuers in the ESG market. A multinational panel of issuers in the global and Japanese capital market gathered to discuss the prospects for increased Japanese investor demand in this fast-expanding area.
Japan’s borrowers have been slow to board the SRI train. However, this is beginning to change, thanks to committed issuers such as the Tokyo Metropolitan Government, the Development Bank of Japan and the Japan International Cooperation Agency.
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