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Japan's Investment Banks Love Abenomics's Stimulus

Employees work on the trading floor of the Tokyo Stock Exchange

Photograph by Tomohiro Ohsumi/Bloomberg

Employees work on the trading floor of the Tokyo Stock Exchange

Investment banks are among the first and biggest beneficiaries of Japan’s new economic stimulus policies, known as Abenomics. Since Prime Minister Shinzo Abe came into office in December with a plan to end more than a decade of deflation, demand for banks that help companies sell equity and debt is white-hot. Companies have more than tripled sales of stock to 1.7 trillion yen ($17 billion) this year through May 15, compared with the same period in 2012, according to data compiled by Bloomberg. Corporate bond issuances climbed to 3.3 trillion yen, the best start to a year since 2009, the data show. “This is the industry that’s benefiting from Abenomics,” says Shinichi Ina, a bank analyst at UBS (UBS) in Tokyo.

Investment banks are already enjoying rising brokerage fee income, thanks to the Abenomics-spurred stock market rally. Japan’s Topix Index of shares has jumped 71 percent since the start of Abe’s campaign on Nov. 14, as foreign investors buy into the market. On April 26, Nomura Holdings (8604:JP), the country’s biggest brokerage, posted its highest quarterly profit in seven years. Mizuho Financial Group’s (8411:JP) equity sales team is getting swamped with inquiries from overseas investors, and customers have been reactivating dormant trading accounts, says Mikihiko Kitano, a spokesman. “Our analysts used to struggle to get appointments with these clients,” Kitano says. “Now we’re trying hard not to turn down their offers to meet.”

Investment bank hiring is also picking up, according to executive recruiter John Byrne, a partner at Tokyo-based Ascent Global Partners who as recently as November considered leaving equities recruitment because business was so bad. “My work is much busier right now,” he says, adding that recruiting season, which usually lasts from January until June, will probably continue to September. “Japan used to be the ugly sister of Asia, but now it’s the Cinderella.”

Not all analysts are optimistic that the good times will continue for brokerages. Right now the explosive rally at the Tokyo Stock Exchange is being driven by foreign investors, who represent more than half the daily trading volume on some days. Azuma Ohno at Barclays (BCS) in Tokyo says growth at securities firms hinges on whether they can persuade Japanese households to move their savings into riskier assets. “Individual investors must be very skeptical given that they haven’t taken action yet despite the spike in stock prices,” says Ohno. “We have to wait and see if this favorable market environment will encourage them to move their funds.”

The bottom line: Encouraged by booming markets, companies have sold $17 billion worth of stock and $32 billion in bonds.

Hyuga is a reporter for Bloomberg News in Tokyo.
Yui is a reporter for Bloomberg News in Tokyo.

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