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EXECUTIVE SUMMARY: TOKYO MONEY AND FOREX MARKETS



December 1999



The terms of the Project were to provide a report on the Japanese money and foreign exchange markets with particular reference to regulatory issues, macro and micro market structure, medium term market trends and long term central government policy to the Client for senior management optimum business positioning in the markets.

Interviewees represented: providers of these services (10 foreign institutions + 2 Japanese institutions), operating company users (2 foreign companies + 12 Japanese companies), asset management- related users (3 foreign institutions + 4 Japanese institutions) and third party commentators (9 central government-related + 9 industry-related + 2 independent observers).

The methodology includes an environmental scan with an emphasis on Japanese institutional practices. For confidentiality reasons the source interviews are shown with interviewee status/affiliation generically identified. Interviewee opinion is discussed with reference to regulatory practice both trends and projections. Supplementary information includes material for readers unfamiliar with Japan.

Institutional practice is determined by the three historical tendencies of Japan: Yamato (frequent dissimulation), China (bureaucrat political power) and Prussia (directed national economic policy). The report covers dissimulation over the banking crisis, bureaucrat politics over financial regulation and directed national economic policy over money + forex markets.

The banking crisis means the Japan Premium may be revisited. There is the likelihood of an inflationary solution and a temporarily weak JPY. MoF will continue to promote the appearance of Anglo-Saxon regulation. Money market regulation is being modernised, but forex is remaining in Limbo: Client appreciation of the situation appears debatable.

Comment on the Client is neither favourable for presence nor for marketing: ".....first tier Chase etc, second Deutsche etc, third Barclays etc and fourth (Client) etc.....was aggressive in marketing to (Client home country) firms some time ago.....used from time to time for relationship reasons only.....could use a foreign bank such as (Client) but have never been approached.....".

Competing providers of forex services and third party observers see an increasingly difficult plain vanilla market with growing margin competition and consolidation. Value-added solutions are required to maintain and develop clients. Major end-client flows are required to generate dealing profits. The smaller foreign players must play selectively to their strengths.

In general, the Client marketing strategy seems to be less pro-active than the competition. Client administrative separations plus Head Office caution towards Japan exposure appear to be the causes of this stance. Nevertheless, there are novel models for exploiting Client strength in classic trade finance services among export/import manufacturing industry.

Medium-sized manufacturing companies, the Japanese Mittelstand, are a business possibility: prices could be offered on the internet with regional bank execution. Larger manufacturing companies should be buyers of trade finance related services offered in respect of exotic locations. A niche service discussed would be "straight through execution" for such locations.

Head Office support, credit control capability, trade finance capability and administrative integration would provide the product for launch of pro-active marketing. The internet is very newsworthy and would raise the perceived market presence. While the internet concept is little more than low cost PR, the trade finance concept is altogether a more substantial proposition.



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