Japan M&A Demand to Withstand Yen Slide, JBIC’s Watanabe Says

Japanese companies’ appetite for overseas acquisitions will remain even after a slide in the yen, according to the deputy chief of the nation’s export-credit agency.

“There continues to be demand for overseas M&A even though a weaker yen may make it harder,” Hiroshi Watanabe, executive managing director of the Japan Bank for International Cooperation said in a May 29 interview. Japanese businesses need operations in foreign countries with rising populations and incomes, Watanabe said.

JBIC is preparing to expand lending to Japanese companies in foreign currencies, by issuing bonds and using swaps with local banks, Watanabe said. The yen has tumbled about 18 percent against the dollar in the past six months, enhancing the competitiveness of Japanese exports while increasing the cost of foreign acquisitions, which reached a record last year.

Watanabe said that Southeast Asian nations offer large potential to Japan’s manufacturers, while slower-growing developed nations also hold promise.

Japan’s infrastructure exporters are shifting focus from just selling equipment to include maintenance and operations, Watanabe said, pointing to the need for JBIC to provide longer-term loans to companies and offer local currencies. “There is no doubt that the demand for local currency is increasing,” he said.

Japanese companies last year mounted a record $112 billion in overseas mergers and acquisitions as the yen averaged 79.83 per dollar, a value 33 percent stronger than its mean of 105.81 over the previous decade, according to data compiled by Bloomberg. The currency was at 100.84 as of 2:26 p.m. in Tokyo.

Bond Market

Watanabe, a former head of currency policy at the Finance Ministry, also said that volatility in Japan’s bond market has calmed down compared with April. The central bank yesterday increased the frequency of its monthly asset purchases after bond-market participants told officials that changes were needed in the wake of increased volatility.

The BOJ said in a statement that it will buy government debt about eight to 10 times a month starting in June, compared with about eight times now.

JBIC last year extended loans to Hitachi Ltd., which won a contract to provide and maintain inter-city trains in the U.K. There will probably be emerging demand in other advanced nations, including the U.S. and Australia, Watanabe said.

Prime Minister Shinzo Abe is targeting a tripling in infrastructure-related exports to about 30 trillion yen ($297 billion) by 2020.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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