Nomura chief executive predicts weak yen will kick off foreign M&A wave

The yen’s plunge to a 20-year low against the dollar will hand a significant advantage to foreign bidders in the competition for Japanese assets and drive a wave of inbound dealmaking, says the chief executive of Nomura.

The recent easing of entry restrictions on business travellers, along with the forex-driven phenomenon of a “cheap” Japan, was already prompting foreign investors to take grand tours of the country’s largest cities in a quest for real estate, Kentaro Okuda told the Financial Times.

The yen’s recent slide to ¥134.45, he added, had set Japan’s biggest investment bank scrambling to strengthen relationships with would-be foreign buyers of domestic assets.

“In this market, much stronger bids will come from non-Japanese” suitors, said Okuda, adding that the exchange rate turmoil, which has made Japanese assets about 20 per cent cheaper in dollar terms than they were a year ago, was also unfolding against a set of global economic factors that had pushed corporate Japan to a historic turning point.

A generation of Nomura staff who had spent their careers in a world of low, zero or negative interest rates was being forced to adapt to dramatically changing circumstances, he said.

“Younger traders don’t have experience working under a situation where the interest rate is going up. It’s a paradigm shift. I am always saying not to continue what we did yesterday,” said Okuda.

Asia-focused funds, especially private equity, which had previously targeted greater China as the region’s core opportunity were turning to Japan as the more liquid, accessible option given the increasing obstacles to investment under President Xi Jinping’s administration.

The high-profile battle for control of Toshiba, which is likely to become the target of Japan’s biggest-ever take-private deal this year, would “completely change” the mindset of Japanese chief executives, added Okuda.

A large number of midsized, owner-led listed Japanese companies are on the brink of succession crises, and the symbolic weight of a privatisation on the scale of 146-year-old Toshiba, one of Japan’s biggest industrial groups, would convince many to consider the option.

Okuda’s remarks came ahead of a Bank of Japan monetary policy meeting on Thursday and Friday, which an overwhelming majority of economists predict will result in the central bank keeping rates on hold.

Such a decision would leave Japan as an increasing outlier as other large central banks pursue rate-raising cycles. It could also add momentum to the yen’s precipitous drop, which last week took the Japanese currency close to a 24-year low and prompted analysts at Nomura to make hasty adjustments to its currency forecasts for the remainder of the year.

But Okuda revealed that Nomura’s board had been warned by one of its members a year ago to expect the yen to fall out of the trading range it had occupied for the previous six years.

Patricia Mosser, the former New York Federal Reserve economist who oversaw the implementation of quantitative easing policies in the US after the global financial crisis, now sits on Nomura’s board. In July last year, she asked Okuda what represented the company’s biggest risk, he said.

She warned him that because he was sitting in Tokyo, he didn’t know what was happening outside Japan and needed to prepare. “She didn’t say that the yen was going to ¥130, but she educated us,” said Okuda. “She said we need to prepare for a situation where the yen was weaker.”

“That happened in July,” said Okuda, adding that Mosser had recommended the bank build up its non-yen funding.