Why Nomura is missing out on Japan reflation trade

Nomura Holdings

30/07/2025 24:00

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to remove Bank of Japan ticker in the view.

By Una Galani

HONG KONG, July 29 (Reuters Breakingviews) - Japan's entry into a new economic era after decades of deflation is spurring a surge in corporate activity and is exciting global investors. But you wouldn't know it by looking at Nomura Holdings' 8604.T lacklustre share price. Investor wariness of the firm stumbling into yet another scandal may explain part of it. But a key factor is that CEO Kentaro Okuda is chasing long-term growth overseas.

   That strategy doesn't appear to be hurting results. The $20 billion bank's run of decent earnings continued last quarter. Net profit rose 52% to 104.57 billion yen, about $705 million, compared with the same period last year, driven by its wholesale division that contains its investment bank. Stripping out one-off items, including the sale of a Tokyo property, the firm's annualised return on equity was about 8.5%, just within its target range.

Yet since the Bank of Japan ended its negative interest rate policy in March last year, Nomura's shares have risen less than 6%. That's just shy of the 7% increase in the benchmark Topix Index .TOPX.

Sure, as an investment bank and wealth manager, Nomura benefits less than Japan's top three lenders - Sumitomo Mitsui Financial 8316.T, Mitsubishi UFJ 8306.T and Mizuho Financial 8411.T - from clients' rising borrowing costs. It is, though, building a relatively small banking division to provide margin loans to its wealth clients.

Nor is Okuda content with helping Japanese companies to strike deals in the busy domestic market, including its mandate on the 9.9 trillion yen ($67 billion) transaction involving Toyota Industries 6201.T. This surge in local M&A and corporate reorganisations looks temporary because Japan's long-term growth outlook is weak.

 So Okuda is allocating more resources to the international business. This accounted for 29% of profit before tax in the full year to March, compared to just 2% a year earlier. One reason for the jump is Nomura has made big gains in equities in Asia ex-Japan. He is using dealmaking to speed up the process too.

The pending purchase of Macquarie's U.S. and European public asset management businesses, unveiled in April, is the set-piece of Nomura's push West. At $1.8 billion, Nomura is paying a not-too-bad multiple of 1% of assets, and the bank will use the platform to build its private market solutions, expand client coverage in other regions, and make bolt-on acquisitions.

The purchase - its biggest since the acquisition of some Lehman Brothers assets in 2008, which it later wrote down - will catapult Nomura's assets under management to $770 billion, closer to Okuda's 2030 goal of $1 trillion.

Yet the decision to act now rather first prove its profitability is sustainable comes with a cost: Nomura's market value remains stuck at 0.8 times book value, per LSEG. Japan's megabanks trade at par or above. Other global banks including HSBC HSBA.L are trimming businesses, rather than making big purchases, to win investor confidence. Like many companies in Japan Inc, though, Nomura is convinced its future lies predominantly abroad.

Follow Una Galani on LinkedIn and X.

CONTEXT NEWS

Nomura Holdings, Japan's biggest brokerage and investment, on July 29 reported first-quarter net profit of 104.57 billion yen for the three months to the end of June, a 52% increase from the same period in the previous year. The results fell just short of the 106 billion yen consensus estimate compiled by Visible Alpha.

Net revenue rose 15% over the same period to 523.3 billion yen.

Nomura is lagging the rally in Japanese financial stocks https://www.reuters.com/graphics/BRV-BRV/znvnnxnxjvl/chart.png

(Editing by Antony Currie; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on GALANI/ una.galani@thomsonreuters.com))