This document discusses shifts in the Japanese economy and their potential impact on EU-Japan investment from the perspective of the financial sector. It notes that the size of Japanese financial markets provides opportunities for cross-border investment. While financial regulations have improved, further constructive dialogue is needed. Data shows an increase in cross-border capital flows between Japan and other regions like Europe. Loose monetary policy and public financing needs may drive more foreign investment and collaboration.

1. Shifts in the Japanese Economy and the
Potential Impact on EU Japan Investment:
Insights from the Financial Sector
Philippe Avril
Vice-Chairman, International Bankers Association of Japan,
Chief Country Officer, BNP Paribas Japan Group,
& CEO and Representative Director, BNP Paribas Securities (Japan) Limited
Fifth EU Asia Top Economist Round Table
EU Japan Economic Forum
Tokyo, 14 November 2014

2. 2
Contents
1. Japanese Financial Markets: Size Matters
2. Business Environment: Financial Regulations
3. Increase in cross-border flows

3. 3
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
GDP : Top 10 countries in 2013
USA China Japan GermanyFrance UK Brazil Russia Italy India
USD bln
Source: IMF World Economic Outlook database
Japanese Financial Markets: Size Matters

4. 4
Japanese Financial Markets: Size Matters
Household sector- Financial assets
Source: BOJ, BNP Paribas
JPY trillion
As of March end of each year

5. 5
Stock Exchange: Market Capitalisation (as of June 2014)
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
NYSE NASDAQ Japan
Exchange
Group
Euronext HK
Exchange
Shanghai SE TMX Group Deutsche
Börse
SIX Swiss Shenzhen
SE
USD bln
Source: World Federation of Exchanges
Japanese Financial Markets: Size Matters

6. 6
Stock Exchange Turnover: Value of Share Trading (YTD June 2014)
USD mln
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
NYSE NASDAQ JPX Shenzhen SE Shanghai SE Euronext Deutsche Börse HK Exchange TMX Group Korea Exchange
Source: World Federation of Exchanges
Japanese Financial Markets: Size Matters

7. 7
Outstanding balance of government bonds (as of October 2014)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
USA Japan Italy UK France Germany
USD bln
Source: Bloomberg
Japanese Financial Markets: Size Matters

8. 1,400
1,200
1,000
800
600
400
200
0
GPIF GPF Norway ABP
Netherland
National
Pension
South Korea
FRT US CPE US Canada P NSS China CPF
Singapore
PFZW
Netherland
8
Japanese Financial Markets: Size Matters
USD bln
Top 10 Pension Funds in the world
Source: Pensions & Investments / Towers Watson 300 analysis

9. 9
Japanese Financial Markets: Size Matters
Monetary base
146 trn
(Mar. 2013)
202 trn
(end 2013)
275 trn
(end 2014)
400
350
300
250
200
150
100
50
0
Projection
09 10 11 12 13 14 15
Source: BOJ, BNP Paribas
JPY trillion

10. 10
Business Environment: Financial Regulations
 Considerably improved over the last few years: “Better Regulation”
initiative
 Perceived strong commitment from Japan to global agreements and
international coordination
 Broad thinking alignment between European and Japanese financial
regulators / European and Japanese financial institutions
 Constructive dialogue between foreign financial institutions and Japanese
financial regulators on continuous improvement of regulatory
environment

11. 11
Increase in cross-border flows
Total: JPY 284 trillion
EU
36%
(JPY trillion) 2013
Oceania
4%
North America
33%
Central and
South
America
19%
Others
8%
Investment in Foreign Bonds
Source: BOJ

12. 12
Increase in cross-border flows
0
5
10
15
20
25
30
35
40
45
1971/3
1973/3
1975/3
1977/3
1979/3
1981/3
1983/3
1985/3
1987/3
1989/3
1991/3
1993/3
1995/3
1997/3
1999/3
2001/3
2003/3
2005/3
2007/3
2009/3
2011/3
2013/3
2015/3
Foreign investors Retail (individual + trust funds)
%
Ownership ratio (Foreign investors and Retail) of listed stocks
Source: Tokyo Stock Exchange

13. 13
Increase in cross-border flows
Source: MARR
Target for Outbound M&A transactions
Number of Outbound M&A transactions
2011 2012 2013
96
123
83
6
55 24
56
73
15
3019
455 transactions 515 transactions 499 transactions
55
60
29
9
112
78 184
116
99 147

14. 14
Increase in cross-border flows
Rank Announced date Target name Acquirer name
Deal value
(US$m)
1 24 Sep, 2013 Tokyo Electron Ltd Applied Materials Inc 6,986
2 2 Jul, 2013 Bank of Ayudhya PCL Bank of Tokyo-Mitsubishi UFJ 5,315
3 26 Sep, 2013 Grohe AG
LIXIL Group Corp /
Development Bank of Japan Inc.
* BNPP acted as FA to LIXIL
3,959
4 11 Jun, 2013 Hitachi-Thermal Power Business Mitsubishi Heavy Industries-Thermal Power Business 3,277
5 19 Feb, 2013 Robeco Groep NV ORIX Corp 2,593
6 9 Sep, 2013
Lucozade and Ribena business
(GlaxoSmithKline PLC)
Suntory Beverage & Food Ltd 2,119
7 27 Sep, 2013 Panasonic Healthcare Co. Ltd. Kohlberg Kravis Roberts & Co. L.P. 1,677
8 29 Nov, 2013 Thyssenkrupp Steel USA LLC Nippon Steel & Sumitomo Metal Corp / Arcelor Mittal 1,550
9 15 Oct, 2013 Supercell Oy
Softbank Corp. Japan / GungHo Online Entertainment
Inc.
1,530
10 26 Apr, 2013 Sumikin Bussan Corp Nippon Steel Trading Co Ltd 1,388
N.B. Japan related announced transactions, Outbound transactions in green Source: Thomson Financial, Bloomberg
Stock buy-backs, Inter-group reorganization not included

15. 15
Increase in cross-border flows
Further potential
 Impact of Japanese monetary policy: growth of foreign investment
• Financial institutions: asset diversification (e.g. GPIF)
• Individual savings: escape from negative real interest rates
• Direct investment by Japanese corporations: strategic imperative of
foreign development
 Impact of public finances
• New financing methods required for public/private projects
(e.g. infrastructure)
 Impact of growth strategy?