Growth of Japanese banks in the FX market
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27 October 2011
The Japanese banks have grown their global FX volumes market share tremendously in the last year by winning western money management clients and hedge funds as well as the Japanese FX volumes which were generally routed through their Western counterparts. This has been driven by the international roll-out of the e-commerce platforms and a global growth strategy. As the growth opportunities in the domestic market shrank, the top Japanese players including BTMU, Mizuho and Sumitomo have started exploring outwards for growth and they have renewed their focus on Europe and the Americas. Since most of these firms already had a world class e-commerce platform deployed domestically, it did not require a quantum leap from their side in terms of investments to roll out these systems globally.Nomura though has had a different trajectory of growth. It has been more of a global player than a local one but had been lagging in market share in the domestic Japanese market. In Western Europe, Nomura has jumped more than 25 places to become a top 15 player by FX volumes market share. It also grew market share in the non-financial corporate segment globally. Now it is focusing on growing their volume share in the domestic Japanese market with the focus of toppling the traditional market leaders in that market.BTMU and Mizuho made overall real money gains in the Japanese market in the last year where Nomura is still lagging behind these two players. BTMU and Mizuho are ranked 2 and 3 behind JP Morgan in this market. Now both are following the global growth route taken by Nomura - building their own e-trading platform and rolling out worldwide and expanding sales desks in Europe and competing in pricing. BTMU had a global sales desk restructuring this year as well. At the top, the global real money market looks nearly the same in terms of the leading players but beyond the three largest players, that there have been a lot of changes in terms of market share as some of the top global banks have lost a bit of market share. Some of this has been due to the changes in pecking order driven by the financial crisis while some of the custodian banks have been affected by pension fund related legal battles. But with yen being a very highly traded currency even now, Japanese banks can further leverage their yen liquidity to gain more business volumes from their competitors. In terms of strategy, BTMU and Mizuho appear to be doing a reverse of the "Nomura approach" - while Nomura has grown globally through the Lehman acquisition and is now focusing on Japan, the other players have their strong-base in Japan and are looking outwards. But the plan of growth is similar- strong focus on e-trading platform, expanding sales desks, better pricing. For players other than Nomura, even with their renewed investments in e-commerce, these firms are going against years of development of the e-trading platforms of the market leaders. Competitive pricing will help to grow from a smaller base but to break into the top, these banks need to do more - they have to increase the footprint in the non-bank financial firms segment and capture a lot of corporate market. But with their strong credit ratings and balance sheet strength will enable them to be strong contenders in the FX space for the longer term.