Expanding our Presence in Japan, World’s Third-Largest Economy

On Aug. 4 BMO announced its registration as a Securities Licensed company in Japan, marking an expansion of its footprint in the world’s third largest economy and Canada’s fourth largest export partner. The license enables BMO to enhance the service it provides to existing clients, attract new clients who prefer to deal with onshore banks, and engage in the marketing, sale and distribution of foreign fixed income securities including US & Canadian Rates, Credit and Securitized Products, setting the foundation for expansion of other BMO businesses.

Following are excerpts from a conversation with Rob Yeung, BMO Capital Markets Head of Global Equities and Financing Solutions (GEFS), Joe Leary, BMO Capital Markets Head of Digital and Liquid Trading, and Yuko Kamiya, Representative Director, BMO Japan Securities Ltd. in Japan, where we discussed why BMO’s entry into Japan is a win for BMO and its clients.

What is the significance of opening an office in Japan to our clients and how does it fit into our strategy?

Japanese investors buy a host of our core products, and have been active in our markets for years, whether it’s in U.S. Treasuries, Canadian Covered Bonds or mortgage-backed securities and credit bonds. Japanese investors own $2 trillion in U.S. treasuries, are the largest oversees holder of US agency mortgage bonds and are also the largest buyer of 10-year Canadian CMB bonds - so they have a very strong affinity for North American products. Our new presence in Japan will allow us to provide products and trading services in which we as a bank have particular expertise to this large and sophisticated client base.  It will also provide a new level of market access to our issuers.  BMO’s registration as a Securities Licensed company in Japan works from all sides, for our platform and for our core strategy.

Why now? Is this a response to the changing global panorama or has this long been on the books?

Over the past few years BMO has really grown its capabilities as a market maker, liquidity provider and issuer in several major areas of the market which allows us to be more relevant to counterparties globally, particularly in Japan. It’s very important to Japanese investors to know that we have boots on the ground and local representation because it demonstrates our commitment and because, on a practical level, they can speak with someone who is local and speaks Japanese. This becomes particularly critical to our Japanese clients in matters of urgency, when they want to be able to transact locally, in their own time zone and in their own language.

Turning to you Yuko, from your perspective with a local presence now, why is it important to be in situ in Japan rather than servicing clients from other nearby centres in Asia?

We used to service clients from Hong Kong, but we learned that many key clients who trade our products demand a counterparty with a domestic Japanese securities license because of their internal rules and language issues. As well, Japanese investors have had negative experiences with many foreign banks who left the Japanese market during the Great Financial Crisis and provided minimal support. As a result, Japanese investors now want to see that foreign banks have committed to the domestic market by establishing a physical presence in Japan before they will consider doing business with them. The Tokyo office provides Japanese investors with a new, major UST primary dealer with a Japanese securities license.

Is there something happening in Japan right now, like a surge in deployable capital, that makes this announcement especially significant for BMO and our clients?

The Japanese have a high savings rate and that has been a historical norm that continues to this day. The Japanese also continue to have lower interest rates than most other jurisdictions, and so as interest rates rise in Canada and the U.S., some of the appeal of our product suites becomes more attractive for the Japanese investor. If interest rates in Japan stay at one or two percent, for example, maybe you’ll get three and four percent in Canada and the U.S. and that’s attractive to them.

Joe, you’ve been spending a lot of time looking at how to take our product expertise in flow products and make it truly global. Why is that even necessary and is there anything you would add about Japan?

The first point I would make about the US treasury market in general is that it requires offering 24/7 trading and liquidity to best serve our clients.  Japan comprises up to 25 percent of all the US treasuries purchased and because they are such a large portion of the market, it is important to be able to connect in real time. They are so large that the demand also extends beyond treasuries to other high-quality assets they can buy during the overnight session such as mortgages and SSAs. In a nutshell, if you look at where all the big flows sit in the overnight sessions, it’s Japan.

Turning back to you Rob, how will this new office complement BMO’s Asia strategy and offering?

This office complements our existing Asian presence. It is a stable political and regulatory environment, which we deem very attractive, and which has always been important to our investment thesis.

From a competitive perspective, why is this a good time to be launching these capabilities in Japan?

There has been a lot of change in the world lately, and a lot of our European competitors in particular have either shut their doors or retrenched. Many of them never fully recovered from 2008/09 and others have barely survived the pandemic. Some, those who have fared the worst during the past 15 years, have pulled out of a lot of jurisdictions, including Asia. Against that backdrop, Canadian banks have come to be known as being slightly more stable. They go into a region, and they stay in the region, so that has been appealing.

Does our expertise in CAD and USD also help?

Yes, Canadian and U.S. dollar. We are in fact trading more U.S. dollars than Canadian. Both jurisdictions provide alternatives to domestic investments, which come and go from a basis perspective. You buy a 30-year Yen Bond, for example, and you are getting 1 percent.

How much does this announcement have to do with BMO’s “Follow-the-Sun” model?

Rob: One hundred percent relevant. Being able to service the clients in their time zone with people in their own language is part of the Follow-the-Sun model, which basically means being able to operate 24 hours a day. The Follow-the-Sun model basically means having capabilities in the time zone, including boots on the ground, and having visibility in your local language, which we have.

Joe: Just to add to that, the Follow-the-Sun model is BMO’s commitment to give all our clients access to superb liquidity, no matter where they reside, no matter what time they trade with BMO. When clients come in to transact in Europe or Asia, we want them to have the same quality of pricing as they would see in New York or Toronto time.  By expanding our trading presence in Asia and Japan we have a continuous ability to provide that liquidity.

Turning back to you, Yuko, as you open the new offices what will be your priority?

Our priority will be to deepen our existing client relationships and start new relationships by talking and listening to clients and understanding how we can best service their needs. We also want to educate them about the depth of products and expertise that we have. Japan is a big country, but BMO is not a well-known name here, so publicising who we are and what our capabilities are is important. Demonstrating our client obsession and becoming a trusted advisor to clients over the long term is the goal, and this approach will allow us to create a substantial business here.

How will you execute on our offering?

We will execute on our offering by focusing on clients and delivering them the full BMO platform across sales, trading, and research. We also want to understand our clients’ needs and help them meet those objectives by providing solutions in a timely manner.