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?