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Greetings from Tokyo!

Another interesting week in Japan, the highlight being new Bank of Japan measures to reward with a kind of “bonus interest rate” those regional banks that commit to reducing their overhead cost, restructure, and possibly merge. We take this as the latest shot in a battle over increasing concerns about the sustainability of the sector, after 20+ years of zero interest rate policy, an overall declining population in Japan going hand-in-hand with further urbanization, and associated diminishing regional economic activity.

Rather than entering straight into a critique of the BOJ proposal, which (without taking the punchline away) likely is too little, too late, we intended to baseline our understanding and dissect prior research in a series of articles. We started by explaining the customary differentiation between “City Banks, Regional Banks and ‘Other’ Banks”, before surfacing a Financial Services Agency study from 2018 that boldly stated that about half of Japan’s prefectures cannot sustain their own regional bank. …


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Thank you for the question! After we baselined our discussion of Regional Banks vis-à-vis City Banks and “Other” Banks in our previous article, let us go one step further. The “need” for a regional bank can be highly subjective, so that a Governor might insist that her prefecture must have its own regional bank. That is roughly comparable to the attitude of national governments towards their airline industry in the last century — every country had to have its national carrier. Then consolidation set in.

The much more incisive question to ask, we think, is how many regional banks the economic activity in a given prefecture can profitably sustain. And voilà, the answer is surprisingly straightforward. The Financial Services Agency (FSA), through the “Review meeting for improving financial intermediation”, actually published a paper in 2018 titled “Regional Financial Challenges and Competition”, which included the following assessment. …


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Ever since Prime Minister Suga’s statement that “there are too many of them” meaning regional banks, the sector has been the focus of news agencies, speculators, and — this week — an unprecedented proposal by the Bank of Japan (BOJ) to use financial incentives, rather than regulation, in a drive to reduce overhead costs at these institutions, and promote consolidation.

Given that this is a crisis that has been in the making for 20+ years, ultimately caused by the BOJ’s Zero Interest Rate Policy (ZIRP), we will step back and review some of the fundamental information in order to level set, before commenting further on the current state of regional banking and the BOJ’s proposed measures. …


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Nicholas Smith, Japan Strategist at CLSA in Tokyo, made headlines with his CNBC appearance on Monday. Luckily, we already had our interview scheduled for right after, so Nick provided a deeper discussion of his perspectives on the Japanese markets, how foreigners have left just as profit growth was accelerating, why the Bank of Japan’s ETF buying spree has had little effect, and warns against underestimating Suga-san as Prime Minister. Here is the essence of our interview, edited for ease of reading. For the full interview, please click below for Spotify, or check the podcast platform of your choice.

We saw you on CNBC yesterday. So the headline for this podcast has been made already. Japan is still cheap — why is it so cheap?


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Greetings from Tokyo!

A lovely autumn weekend away from the city delayed this week’s digest. Last week, we were invited back for a Q&A session with CLSA’s institutional investors. It is always illuminating to see where this group’s focus is — the last time, maybe somewhat predictably, quite a few of the questions centered around the relative positioning of the listed companies (since this is their investable universe) in the digital economy. Although last week’s session was set up to be very broad, most of the time was spent on Central Bank Digital Currencies (CBDCs), and some focus given to Suga’s proposal of a Ministry for Digital Affairs. The odd question about the need for Bitcoin, yes, but we seem to have moved beyond those fundamentals. …


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In a press release on Friday, November 6, the Japan Financial Services Agency (FSA), the financial services regulator, announced measures to promote the use of English and establishing a single point of contact for foreign asset management firms.

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Since publication of the “Global Financial City Tokyo” strategy paper (focusing specifically on attracting asset managers and FinTech firms) in late 2017, there has been a somewhat disjointed effort by the Tokyo Metropolitan Government (TMG), the Cabinet Office and the FSA to re-establish Tokyo as a major financial hub. There are now early signs that this will turn into a coordinated, multi-pronged strategy that addresses a number of obstacles. …


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Monex Group reported second quarter results, including cryptocurrency exchange Coincheck, last week. First half consolidated pre-tax profits for the fiscal year ending March 21 were up by 89% to JPY 4.2bn, with all segments seeing strong results for a group that is pivoting from brokerage to an asset management business.

Second quarter consolidated pre-tax profits of JPY 2.2bn saw the crypto asset segment leading with JPY 0.7bn, a sevenfold increase quarter-on-quarter, and the best result since Monex Group acquired Coincheck. …


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Greetings from Tokyo!

We have still been in the middle of earnings season, so there is more new data out there than we can possibly digest, with the macro picture — the broad strokes of China’s 14th Five-Year Plan, the US election, and an increasingly dire pandemic picture in the US and Europe — throwing big shadows.

So here are some nuggets big and small that we have picked up this past week:

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  • Nomura, ever on a quest to become a truly global player since its acquisition of Lehman’s international business during the Global Financial Crisis, reported a doubling of the share of its international business on the back of a stellar performance in the Americas; highly necessary given the long-term threat its traditional domestic retail franchise faces through zero-commission trading; future quarters will show whether this is…

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GFIN, the Global Financial Innovation Network, a co-operation between financial services regulators to work on innovation-related topics, sharing different experiences and approaches, has announced the official launch of its Cross-Border Testing (CBT) sandbox, following GFIN’s 2019 CBT pilot.

The GFIN cross-border testing workstream has grown from 17 regulators to a group of 23 from across five continents, as depicted in the title picture. This group has committed to using the valuable experience and feedback gained from the pilot to evolve the testing framework to better support participating firms and regulators alike.

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GFIN Regulatory Compendium

Building on the solutions announced in the lessons learned report (including the GFIN website and regulatory compendium), the GFIN has developed several tools and solutions to improve the cross-border testing framework for a new cohort of…


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Source: Deutsche Post

If you are like me, your use of “snail mail” has approximated zero over the last decade, as virtually all communication has become electronic. Maybe twice a year, I cannot avoid going to the post office to buy some stamps, and one of these occasions would be for sending off Christmas/New Year cards. Some national post offices might allow you to pay for stamps online, and print them out at home…but we do not even own a printer anymore!

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However, far from disappearing entirely, the mail volume in the US, for example, has merely declined by 20% over the last decade. With marketing mails holding somewhat steady, their share of total mail volume has increased from approximately 48% to 53%. …

About

Norbert Gehrke

Passionate about strategy & innovation in Japan. Connector of people & ideas.

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