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Philippe Avril, Vice-Chairman, International Bankers Association of Japan; Chief Country Officer, BNP Paribas Japan Group; CEO and Representative Director, BNP Paribas Securities (Japan) Limited speaks at the Fifth EU Asia Top Economist Round Table, talks about recent shifts in the Japanese Economy, examining Japanese Financial Markets; Business Environment: Financial Regulations; Increase in cross-border flows.
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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?