- 2 days ago
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00:00Kihara-san, good to have you with us.
00:01Thank you very much for having me.
00:02We saw a meltdown in the Japanese bond market.
00:05What's your take on it?
00:07Well, you know, I think the government has to be careful sending a message that,
00:16you know, Takai-san said she will use physical policy to revive the country in a responsible manner.
00:26And you have to figure out, we have to figure out what is responsible.
00:30What is diligent, right?
00:31And I think the government has to put out into the market, communicate with the market,
00:37that what will be her physical target in the midterm, what are the KPIs,
00:43and what are the areas that she can be more effective in terms of spending, like the Social Security, right?
00:51And I'm glad that she called for a bipartisan discussion for Social Security
00:58to be more sustainable.
01:00So I would say as long as she sends out the message about what she thinks is responsible,
01:09I think it's fine.
01:11And that's what she has to do, I think.
01:13Is the budget expansionary or not?
01:15In my conversation with the finance minister, she says no.
01:18So, you know, the profile of the Japanese budget, physical policy, has been improving, number one.
01:27Mindset of the Japanese corporates has been improving, which means that you can expand the budget, right?
01:34And so I would say that, and also many figures are improving.
01:40So I would say what Kataima-san has said is right, but she constantly has to send a message that, you know,
01:48they will be diligent on this.
01:50The market's obviously not buying it because yields are surging.
01:5430-year yields higher than bonds.
01:56Might that be a contagion effect?
02:00Might we feel the spillover?
02:02But I think this discussion has to also come from what will be the terminal rate at the end of the day, right?
02:11What should be the terminal rate?
02:12What is the terminal rate?
02:13You want to talk about the terminal rate?
02:14Okay.
02:15So I think what is happening right now is that BOJ has changed their stance moving into this year, I think.
02:21So previously, I was thinking that the terminal rate might be the lower end of 1%.
02:29Based on the fact that Wida-san is setting out the market that the current interest rate is extremely low,
02:39and also that he reiterates that he will raise rates as long as he sees development in the economy, inflation, on the path.
02:50So I would say, at the minimum, 1.5% terminal rate.
02:55I think we can see that.
02:57It might be a little bit more.
02:58And then going back to your JGB question,
03:01historically, the difference between 10-year JGB terminal rate is somewhere around 70 to 100 basis points.
03:13So if the market is already pricing in 1.5 terminal rate, it's 2.3 right now.
03:20JGB 10.
03:20I think it's fine.
03:22That's my call.
03:23And in terms of capital repatriation, it's looking pretty attractive.
03:29Yeah.
03:29Enough for that repatriation to happen in a significant way.
03:33You mean, so what you're...
03:35From the U.S., back to Japan, treasuries to...
03:38You mean those dividend coming back to Japan or things like that?
03:46I don't see a lot of that, probably.
03:48That's not happening.
03:50If that happens a little bit, I think that will...
03:53The yen might be, you know, go to the 155 or so, but I don't see that too much.
03:59Let's talk about the yen.
04:00The weakness continues.
04:02Should the BOJ intervene, raise rates, perhaps three times, as some people have suggested, to give support?
04:08I would say you are right.
04:11So, you know, if the terminal rate should be 1.5, there's another three times, right?
04:18So I think they should do.
04:20Maybe they can do one time 50 basis points.
04:23I won't...
04:26I can expect that too, I think.
04:29I kind of, yeah.
04:30Do you see the first move of the three being before June, July?
04:35I would say the next opportunity would be April.
04:40So he can see how the corporate CEOs will react in reality to wage increase.
04:47And if he confirms that there's a significant wage increase, I think...
04:52And I think he can confirm that in somewhere around March, April.
04:56April can be the case.
04:57And if the BOJ does move then, how much support, what yen level do you think we will see?
05:03Yeah, I would say somewhere...
05:05The range will be somewhere between 145 to 155.
05:09Yeah.
05:10The market is already pricing in three times already, probably.
05:14That's what I think, yeah.
05:15Let's talk about your business now.
05:16What are the prospects?
05:18We have uncertainties around the world.
05:20We're waiting for Trump's speech, which could provide even more risk.
05:23How are you assessing the outlook for your business?
05:27I think...
05:28So even last year we talked about this.
05:31But we are concentrating our business into four areas.
05:35And those areas are doing fine.
05:38Those are mass retail in Japan, asset management, wealth management in Japan,
05:43supporting the growth of Japanese corporates,
05:45and our global CIB business.
05:47And we have seen a lot of significant processing in many areas.
05:52For example, in the global CIB business,
05:55we purchased Green Hill, it's fully integrated already.
05:58We purchased a European firm called Augusta,
06:02and we purchased an Indian firm called Avendis.
06:05And these firms will be the catalyst for our global collaboration around the regions.
06:11And this will be our next growth part.
06:14And last year, I think I said that our target will be somewhere around,
06:21for physical year 29, or 27,
06:24after tax profit, 1.1 trillion,
06:27ROE 10%,
06:28and then PBR somewhere around 1.5.
06:32I think we're very close to that already.
06:34So we're working on revising that target for physical year 28.
06:40And our gut feeling is that exclusive are the rate hikes that can be expected.
06:47After tax, 1.4, 1.5,
06:50a range of 1.4 to 1.5 trillion,
06:52ROE 12%,
06:54PBR maybe 1.75 to 2%.
06:58So that's...
06:59That's pretty ambitious.
06:59Yeah, you have to be ambitious.
07:03Let's talk about your European business.
07:05You did talk about how, you know, restructuring is done.
07:08Now you're going to be on the offensive.
07:09What does that mean, necessarily?
07:11Yeah, so we have been concentrating on optimizing our organizational structure,
07:19also our return.
07:21From an organizational perspective,
07:24we moved into a, you know, universal banking structure.
07:27Last week, we completed that last year.
07:30So that part is done.
07:32And we reduced certain branches to get more effectiveness.
07:35On the return side,
07:37we reduced low return on assets.
07:40We exited from certain relationship
07:42that doesn't produce the right return for us.
07:45So I think it's about our time to go out to the market,
07:49chase for opportunities.
07:50And I think that the opportunities will come from leverage on our U.S. capabilities,
07:57collaboration among the regions,
07:59and also Japanese nexus,
08:02and also Middle East will be also very interesting.
08:07You know, introducing investment to that region
08:11or introducing investment flows out of that region
08:15will be very interesting.
08:16How significant might that business be?
08:19The contribution to your income?
08:20Yeah, yeah.
08:21And your numbers, basically.
08:23I would say that would be from a 1.14 trillion base.
08:28It's not going to be 10%,
08:29but it's probably somewhere around 5% to 7%.
08:32But right now, it's so low.
08:35Any update on your plans in China?
08:37No, so China, yeah.
08:41So we have been there since 1979.
08:46We expanded into 15 branches.
08:50We not only serve Japanese corporates operating in China,
08:55but also we also serve Chinese corporates, too.
08:58We are planning to set up a broker-dealer over there.
09:03We submitted it to the regulators already,
09:08and we want to, you know, commit to the growth of China,
09:12and we want to connect China and other areas, too.
09:16So I think, you know...
09:17What's the end goal?
09:18What are the ambitions in China?
09:20Well, there's not that much.
09:23It's difficult to explain in the end goal perspective,
09:26but I think it's our...
09:29Given the fact that we will step...
09:32There needs to be a final authorization,
09:35but given the fact that we want to establish a broker-dealer there,
09:39I think we want to be a significant player in the debt capital markets.
09:44We are already providing corporate lending,
09:46but we also want to be a significant player in the capital markets business.
09:50Of course, it's been in the news,
09:51the tensions between the two sides, Japan and China.
09:54Might that slow you down?
09:55Might that slow down the plan in China?
09:58Yeah, might so,
09:59but I think we have already applied,
10:04and we will do our work to make sure
10:08that there will be a good foundation for that.
10:11I'm very optimistic about that.
10:13Of course, you've talked about being a major global player, right?
10:17Where are you with that?
10:18So, you want global collaboration in that perspective,
10:26and I think last year we made a significant progress on that.
10:32We brought in Sneel Bakshi for our deputy CEO,
10:38and he is working on enhancing our global collaboration,
10:42also finding talents,
10:43so that we can deploy people to our management team.
10:48And I think he's doing a good job in that search, too.
10:52And I think we are probably somewhere around 30% or 40% in that space.
10:57Wondering if you are planning to have more non-Japanese senior executives in HQ?
11:02Of course, I mean, we are sorting out people
11:07who can be not only thinking about the region that he is existing,
11:13but also from a global perspective,
11:15from a total Mizzou perspective.
11:18And we have figured out there are many of them.
11:20So, we will also educate them,
11:22but also we will try to adopt them to the management team.
11:27Kihara, I've been asking executives
11:29what they deem as the biggest risk for their business.
11:32You know, in your view, is it geopolitics?
11:37I would say more about geopolitics is one factor,
11:41but I would say more about the state of the economy.
11:46Global economy?
11:47Global economy.
11:47So, whether, you know, inflation will be really contained or not.
11:53I mean, many countries are expanding fiscal policy.
11:57There are supply chain disruptions.
12:00Given the fact that there has been persistent,
12:01insistent inflation for many years,
12:05people's expectation, future expectation for inflation
12:09might be higher than 2%.
12:10It might be 3%, 4%.
12:12So, I think whether inflation will be really contained,
12:16that's the biggest issue, probably.
12:19That's probably the biggest risk.
12:20In your sense, do you think it can be contained?
12:23I think it will be.
12:25It can be.
12:25But, you know, there can be certain risks.
12:29Especially for Japan.
12:31Yes.
12:32Kihara-san, thank you so much.
12:32Thank you so much.
12:33Thank you very much.
12:34Always.
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