Morgan Stanley expects record Japan revenue as BOJ fuels trading

Michael Nagle/Bloomberg

Morgan Stanley said it expects to record its highest-ever income from Japan as bets on a shift in the nation's monetary policy fuel a trading revival.

The Bank of Japan's steps toward loosening its grip on bond yields over recent quarters have helped enliven the fixed income market, Alberto Tamura, chief executive officer of the Wall Street firm's majority-owned joint venture with Mitsubishi UFJ Financial Group Inc., said in an interview. If the central bank proceeds to scrap negative interest rates in place since 2016 it could spur even more client activity, he said.

All that may boost the bank's ambition with its partner to overtake Nomura Holdings Inc. as the top broker in the country.

"This could be the highest ever revenue year," for Morgan Stanley MUFG Securities Co., Tamura said, referring to the fiscal year which ends in March. The broker's net revenue last year, at 120.2 billion yen ($845 million), was the highest since the venture was formed. International clients are also paying more attention to Japan, driving activity in equities trading, he said. 

Morgan Stanley joins Barclays Plc in pointing to a trading boom in the world's third-biggest economy as the central bank weighs a landmark shift in monetary policy and Prime Minister Fumio Kishida urges more Japanese to invest. 

The resurgence sets the market apart from much of the rest of the world, with muted trader bonuses expected across a big part of Wall Street after revenues dipped compared to last year. 

The New York-based investment banking giant and Japan's biggest lender, whose links were forged more than a decade ago, are working on closer ties between their two Tokyo-based securities joint ventures with a goal to together overtake Nomura.

"I think we are going to be in a position to become the top securities firm in Japan," by measures such as revenue and market share, Tamura said. The Morgan Stanley veteran, who joined the bank in 1996, said he plans to strengthen every business line, without further elaborating. 

The two ventures have some way to go to catch the market leader. They posted combined net revenue of 381.3 billion yen in the year ended March 31, according to filings. Nomura's flagship brokerage unit Nomura Securities Co. had 488.8 billion yen in net revenue over the same period.

MUFG invested $9 billion in Morgan Stanley at the height of the financial crisis in 2008, buying a 20% stake. Following the alliance, they set up Morgan Stanley MUFG Securities and Mitsubishi UFJ Morgan Stanley Securities.

Over time, the ventures will probably find more areas of collaboration both in Japan and elsewhere, Tamura said. Still, there's no plan to fully merge the two, he said.

James Gorman, Morgan Stanley's outgoing CEO, predicted last month that the bank's alliance with MUFG will last for at least another decade. Gorman hailed the two ventures' latest moves to deepen ties, including strengthening foreign exchange collaboration and merging research and Japan equity sales for institutional clients.

"We believe that the potential in Japan is very large," Tamura said, highlighting national efforts to overhaul the asset management industry and cajole households to invest more of their roughly $15 trillion in financial assets. "It is pretty clear for management in New York that there's a lot of opportunity here in Japan across all business lines."