00:00My colleagues in the studio just mentioned where you are on JGB yields and, you know, we now have an
00:06interest rate in Japan.
00:07Yes, finally.
00:08Finally, we have 3% now on the 10-year JGB. How has that changed things?
00:15The inflation in the country has been zero for a very, very long time, but that put a lot of
00:20pressure on corporate activities.
00:22And now we have a healthy inflation, even though rate going up, both the corporate finance and investment side is
00:31starting to be accelerated and the more activity we've been seeing.
00:34You know, corporate finance needs is growing very fast.
00:37We recently did the private equity transaction to Nippon Cyclast, $1.1 billion.
00:47So a lot of corporate finance activity is growing.
00:50At the same time, yield has become normal.
00:54So a lot of investors try to beat the CPI and higher inflation in the investment perspective.
01:02A lot of capital, which has been sleeping in the bank deposit, yielding at zero, now started moving to various
01:09other places.
01:10Right.
01:10And you also have capital that's been sitting outside on an interest rate, now having to determine whether or not
01:17to sit outside even more or bring it back in.
01:20Just where, generally speaking, how do we need to be, what's the framework we need to be using to look
01:24at possible inflows back into Japan?
01:27I think, you know, it's simply the investor has more choices.
01:33Still, even though rate went higher in Japan, still other countries have a higher rate.
01:40Like U.S., you know, 10 years is trading 5%.
01:43Right.
01:43So in the past, it was only 0% and 3% in U.S.
01:49Now, investors have more choices.
01:52So I think it gives more opportunity for investors to think about, to diversify the portfolios.
02:00And something new that investors looking at JGBs now have to consider is, you know, the ability for the government
02:07to service debt at interest rates at these levels.
02:09How does this affect the risk profile, you think, of JGBs?
02:13So, obviously, interest rate payment is increasing if the, you know, government need to finance with the current rate.
02:22Right.
02:22But at the same time, economy is growing very, very fast.
02:26So I think it's a trade-off of the higher economic growth and higher interest rate.
02:33But clearly, as I said, the higher interest rate environment gives a lot of opportunities for investors.
02:41Right.
02:41You know, last week, my mother called me, who is in the 80s, and talking about buying five-year JGBs.
02:47This is the first time in a long time.
02:49Okay.
02:50And your advice was, what, buy the next auction?
02:55What was the advice?
02:56Yeah.
02:56So I recommended her to buy five-year JGBs at the two and a quarter.
03:00Okay.
03:02It's, you know, still quite similar to the level of inflation.
03:06Right.
03:06But at least it's much better than putting the cash in the bank deposit at 40 basis points.
03:12I mean, previously, it was either bank deposits or the equity market.
03:16There was almost nothing in between because there was no fixed income interest rate.
03:19Right.
03:19Does the industry have enough products to deal with this sudden appetite?
03:24Historically, no.
03:26So five, six years ago, government put the tax-exempt account called NISA.
03:31There's a $40 to $50 billion inflow to those tax-exempt account.
03:36Okay.
03:36But investors are investing pretty much in the public equity market, which is almost 20% volatility product.
03:43And as I said, bank deposit, zero volatility, zero return.
03:47Right.
03:47There's nothing in between in the past.
03:49But I think with the active corporate finance needs, I think middle risk, middle return product started to be formalized
04:00in the marketplace because a lot of corporate finance needs to be supported by these investments.
04:06Now, let's talk about opportunities in Japan for institutional money, patient money, looking for decent income, decent yield.
04:15What would you advise?
04:16What are the best opportunities?
04:18I know clearly we need to have a diverse portfolio.
04:21And as I said, now we have more choices because the yield is there.
04:26In the past, there was zero return product or high return product, even for institutional client as well.
04:34So I think there is a huge opportunity in the more fixed income product provide middle risk, middle return for
04:43the investors.
04:44You know, a lot of the tech companies are raising soft bank just as an example, just tapping the markets
04:51to drink just vast amounts of money.
04:52So theoretically, theoretically, in my head, there should be a limit to how much companies can raise.
04:57But it doesn't seem in practice we're hitting that limit or we're close to that limit.
05:01How are you thinking about how much more capex do you think needs to be raised next year compared to
05:07this year?
05:08Do you think there's enough in the market to absorb all of that?
05:11Yes, I think the investment and capex needs in Asia for next 14, 15 years is roughly $40 trillion.
05:20So it's a huge capex demand.
05:23But at the same time...
05:24Is it just AI?
05:26No, not only AI, everything.
05:28Okay.
05:29At the same time, there's a strong investment needs from retirees.
05:34Asia society started to be aging.
05:37And as I said, they need to have right investment, guaranteed return, and to support their retirement life after, you
05:46know, 60, 65 years old.
05:48I think we can bridge those two, investment needs and corporate capex demand, much together.
05:57You're almost a year into the current job.
06:02What are the opportunities in private credit now that you've had some time to look at the market?
06:06Because Asia is very different, as you know, from the U.S.
06:09We're very banked in Asia.
06:11So how do you navigate the cracks of opportunities?
06:14Yes.
06:14So with the higher inflation, and Japan is a very good example,
06:19investors accumulate a lot of capital in the bank deposit, which is zero.
06:25Now it needs to move to proper investment.
06:29So bank deposit space, total bank deposit in the market is not growing at all.
06:35On the other hand, with the higher inflation, corporate finance demand is increasing 5% to 6% per annum.
06:42Right.
06:42So there's an opportunity to bridge those two, capital who are looking for a higher return and corporate capex needs,
06:51which is increasing very, very fast.
06:53So I think the Apollo and financial institutions has the opportunity to provide the right product
07:01and right investment opportunity to these investors to support these huge corporate capex needs in the future.
07:08There was a period last year, there was, as you know, some challenging times around sentiment around the private.
07:14How have things changed?
07:15How have things settled?
07:16So we see continuous interest from institutional investors and the performance of those direct lending funds is not that bad.
07:27I think the media headlines are mostly concentrated on direct lending, which is non-investment grade.
07:33Okay.
07:34I think a lot of the capex needs going forward is coming from more investment grade, more steady investment in
07:43the private credit.
07:44Sure.
07:45Final question for you.
07:46I think the Japanese 40-year bond actually is rallying quite substantially today.
07:49The BOJ is tomorrow.
07:51We started on Japan.
07:51How much more do you think interest rates in Japan are likely to go up?
07:56It's hard to predict.
07:57I think it really depends on where the inflation goes.
08:00Okay.
08:01Well, thank you so much for the time.
08:03Thank you very much.
08:03Data dependent, as they say.
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