Barclays set to break profit record in Japan amid bond boom

TOKYO – Barclays Plc is on the cusp of surpassing its previous annual profit record in Japan, as the country’s debt and rates market experiences a surge in activity. This financial upturn comes in the wake of the Bank of Japan’s (BOJ) policy shift, which has breathed new life into the nation’s $7.2 trillion bond market. The benchmark 10-year Japanese Government Bond (JGB) yield has climbed to a ten-year high, drawing increased investor attention to yen interest rates after a prolonged period of low activity.

With the BOJ’s relaxation of its yield curve control, Barclays’ Tokyo trading floor has been buzzing with heightened activity. CEO Kosuke Morihara acknowledged a significant inflow of yen rate orders, attributing it to international clients. Morihara, who previously headed fixed income financing for Asia Pacific, hinted at expanding his team if the current trend continues. Last year, Barclays posted an impressive profit of 15.1 billion yen in Japan.

Despite a global backdrop of cost reductions following a third-quarter earnings miss and CEO C.S. Venkatakrishnan’s cost-cutting measures, Barclays’ growing operations in Asia have shielded its regional sector from broader job cuts. Stephen Dainton, highlighting the bank’s strategic moves, noted substantial liquidity provisions by Barclays in yen swaps and JGBs amid these market changes.

Looking forward, Barclays remains optimistic about the Japanese market dynamics. Under their base case scenario analysis, they anticipate the BOJ will terminate negative interest rates by April and potentially raise short-term rates to 0.2% by the end of 2024 as part of their efforts to meet inflation targets.

The resurgence in trading opportunities has not been seen since 2008, with traders on Barclays’ Tokyo floor capitalizing on JGB volatility and the ample liquidity provided by financial institutions. Morihara envisions ongoing investor focus on yen rates into next year, suggesting a sustained period of robust trading activity for Barclays in Japan.

InvestingPro Insights

Barclays Plc, a prominent player in the banking industry, displays promising financial figures. According to real-time data from InvestingPro, Barclays has a market capitalization of $26.81 billion and a low P/E ratio of 4.14, indicative of a potentially undervalued stock. The bank’s revenue growth in the third quarter of 2023 was a healthy 0.55%, and it has been profitable over the last twelve months.

InvestingPro Tips highlight that Barclays has raised its dividend for three consecutive years, making it an attractive option for income-focused investors. Furthermore, the bank is trading at a low Price / Book multiple, suggesting that the stock might be undervalued relative to the company’s net assets.

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