00:00Your third year in a row, given, of course, the enthusiasm that we're seeing in the Japanese markets.
00:04But what a time. I mean, I just spoke to Heidi about yields just surging to multi-decade highs.
00:09I mean, this is a situation that Japan hasn't seen in decades.
00:13How's that mindset switch happening right now?
00:16I think the mindset switch is perhaps the biggest event over the past year.
00:23I think it's affecting pretty much every player in the market,
00:28and that could be an individual investor or it could be a financial institution,
00:32but it's also affecting the corporates.
00:35And the fact, as you mentioned, that we have positive rates for the first time in decades,
00:42but the fact that the yield curve is steepening significantly,
00:45along with the uncertainty in the currency market,
00:49is effectively pushing everyone to rethink what they need to do with their financial portfolios.
00:55What does that mean for corporate activity in Japan?
00:57And I cast this question with the caveat that we do have an ongoing war in Iran
01:03that's really leading to prices continuing to rise.
01:05And, of course, Japan is so dependent on Middle Eastern oil.
01:09Well, like any corporate in the world,
01:12I think they need to tackle questions around supply management, material costs.
01:18And, of course, I mean, the extra layer of currency volatility here in Japan
01:23will pose a lot of questions to the management teams of corporates.
01:28Having said that, I think the foundation of structural reform here in Japan will continue.
01:34I think it will continue to drive corporates to make the right strategic decision.
01:39So, all in all, I think the macro environment here in Japan remains robust.
01:45And currency volatility, where does the yen go from here?
01:48I have a view that the currency is going to roll in two directions.
01:53It's going to be either strengthening and hopefully moving to the 140 handle level.
02:02But depending on how events unfold from here, it could be going towards the 170 level.
02:09What are those factors affecting the 140 or 170?
02:12First of all, I think if it heads to the 170 level,
02:16we're talking here about obviously inflationary pressures.
02:18We're talking here about what's happening around the world
02:22and affecting, you know, prices here in Japan.
02:25But how do we get there? Is that the Iran war continuing?
02:29That could be part of it.
02:30But I think, as you mentioned earlier, I think concerns around the budget,
02:35supplementary budgets, how is the country going to manage the fiscal policy.
02:40I think that's going to be the core of the...
02:42Are you leaning towards 170 or 140?
02:45I'm hoping for 140.
02:46For 140, what would need to happen for us to get into the strengthening path?
02:52I think we need to have the Bank of Japan take action.
02:56I think some investors believe that the Bank of Japan is behind the curve.
03:01So hopefully taking action would be step number one.
03:07If things stabilize around the world,
03:09maybe that could also be the path to a stronger yen.
03:13What happens if the BOJ doesn't hike in June?
03:17Then I think we will see an effect in not only the bond market,
03:21but also in the currency market.
03:23Are Japanese authorities going to allow the yen to get to 170?
03:31I'm not sure if they will obviously have full control over it.
03:36I mean, I would imagine that they will not want the currency to weaken
03:39before a syndicate from this level.
03:42Despite all the concerns around the economy,
03:45we are seeing this massive rally around the AI narrative, right?
03:50Is that justified?
03:53I believe it is.
03:55I think the benefits around this massive technological development
04:01are pretty big.
04:03And I think they weigh a lot of the concerns that are out there in the market.
04:07I think it particularly will have a benefit to Japan,
04:10given the acute labor shortage.
04:13I think that would be one area in which AI will contribute to the country.
04:17Because I was just wondering, especially with yields surging now
04:20to multi-year highs around the world,
04:22you have valuation issues for some of these big names,
04:25or even the smaller ones where you're looking at growth stocks
04:29and perhaps these investments not paying off being an issue.
04:34Yes, I mean, that debate will continue.
04:36But at the same time, we need to focus on the fact that capital is being deployed
04:43to finance a lot of these infrastructure projects.
04:48And of course, AI is already having an impact in the way companies are operating,
04:54particularly the ones that are engaging with AI and welcoming AI.
04:59And I would imagine that profit margins are probably improving
05:03on the back of companies or for companies that are adopting AI for the daily operations.
05:10Another big theme here at the Morgan Stanley Summit has been around defense.
05:14How much opportunity is there in that sector?
05:17I think the opportunity is pretty big.
05:19I think what Japan has going for itself right now,
05:23and not only in the context of AI,
05:24but as you mentioned, in the context of defense spending
05:28is a combination of technology and also manufacturing.
05:32And you are seeing that reflected in some of the companies
05:35that are being, you know, bought by investors.
05:39And, you know, that might be one of the kind of like surprises for Japan
05:44over the past year, a combination of the AI boom,
05:47but also the focus on defense spending.
05:50I think a lot of investors are realizing that, you know,
05:53the manufacturing capacity and capabilities of Japan coupled with the technology
05:58that it has is something that is very attractive for investments.
06:03Where have the opportunities been for Morgan Stanley?
06:07Like anything else, I mean, a combination of us providing advisory
06:10to corporates, providing access to our investors,
06:14to all of these companies.
06:16But more importantly, I mean,
06:18I think the content that we provide to our clients is critical.
06:24Some of these technology advances are happening very fast.
06:27They're very comprehensive.
06:29They affect multiple industries at the same time.
06:32So I believe that, you know, what we offer as a firm,
06:35which is one integrated firm approach,
06:38one integrated research approach,
06:40I think will be extremely valuable to our clients.
06:43Where are the opportunities,
06:45especially when it comes to strengthening the cooperation with MUFG?
06:49In multiple areas.
06:51I mean, we have been partnering with MUFG for 16 years
06:56in the joint venture here in Japan.
06:58We have regular conversations in terms of how else can we collaborate,
07:03what else can we do together.
07:05These are ongoing discussions.
07:07And I think over the many years to come,
07:10we will continue to make decisions on how to collaborate.
07:16And we will obviously be sharing that with the public domain whenever they happen.
07:20Given the expansion that you're really hoping for Morgan Stanley in Japan,
07:23how difficult has it been to get talent in this economy?
07:27Yeah, it has been pretty difficult.
07:29And it's always a challenge.
07:31It is a challenge for the country because of the acute labor shortage.
07:36But, you know, as a firm,
07:38we continue to focus on culture, attracting talent, providing...
07:42Are JGB traders the most rare these days?
07:45They continue to be a target,
07:47but I think the peak of the poaching of JGB traders
07:52was probably around 2024, heading into 2025.
07:57I think we've gone through that peak.
07:58When it comes to surpassing Nomura, what's the timeline?
08:04I don't have a timeline, but, you know,
08:07we're pretty focused on becoming the top securities house in Japan.
08:10And that would be our ultimate goal.
08:12So we'll continue to work on that.
08:14When it comes to private credit solutions, for example,
08:17you have MEFG Morgan Stanley credit solutions.
08:20Can you give us an update,
08:21especially given the risks that we've seen globally
08:23when it comes to private credit?
08:27This is one of the collaborations that we have with MEFG.
08:31We have a subsidiary that focuses on private credit,
08:36a combination of sourcing deals, but also placing deals.
08:39And I think we're in a pretty good position
08:41to not only help our clients when they need something,
08:46but also obviously allocating some of the paper to our investors.
08:51So we're pretty well positioned for that.
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