At the close of the financial year on 31 March 2014 Japan Post Bank had an investment-securities portfolio worth 166.06tr yen of which 126.39 trillion yen, or 76.11%, was in Japan Government Bonds and just 935 million yen in local stocks.
Other banks’ positions were less skewed towards debt with, for example, Sumitomo Mitsui Banking Corp and its domestic subsidiaries holding 59.07%, or 14.24tr yen, of a 24.11tr yen portfolio in JGBs and 3.43tr yen, or 14.24%, in Japanese equities.
Were Japan Post Bank to adopt an asset allocation similar to SMBC the stock market would see an inflow of an almost unbelievable 23.2tr yen.
Yet Post Bank has at least two reasons for making such a move following the announcement on Christmas Day that it, as well as Japan Post Insurance and Japan Post Holdings (which has stakes in the other two and owns the postal delivery system), will be publicly listed sometime between September and August 2015.
First, by aligning itself with the practices of other major banks it would help institutional investors value its shares;
Second, by pouring such a flood of funds into the stock market it would ensure substantial price rises for all stocks, including banks, thus boosting its own likely offer price.
Post Insurance had JGBs to shed too
Sister company Japan Post Insurance is in a somewhat similar position but most of its peers are either privately held (mainly as mutuals) or are part of financial conglomerates. Only Dai-ichi Life Insurance is listed on the Tokyo Stock Exchange in its own right.
As the 24 November posting (see archive) shows, if Post Insurance were to normalise its investment holdings relative to those of its peers ahead of listing it would put 6.3tr yen into stocks, producing a smaller rise than Post Bank but one which is significant nonetheless.
Neither institution is likely to its re-jig its positions all at once and any indication that they would in future commit a certain percentage of their holdings to stocks – as politicians have obliged the Government Pension Investment Fund to do — would be as unhealthy for equities as it has been for the national debt market.*
The idea that such huge amounts of money will be free to enter the stock market will nonetheless lend ongoing support to equities — especially since it seems likely that the government will remain Post Bank’s dominant shareholder for years to come.
Support would also come from a mooted extension of eligibility to join defined-contribution pension schemes which currently have only around 183,000 subscribers. This would receive a massive boost if a proposal to include full-time homemakers is accepted.
Mrs Watanabe makes the difference
These same housewives could well form the core of demand for all three types of shares in Japan Post — which is both well known and well liked throughout the country.
Many Mrs Watanabes are active mutual fund investors and Nomura Securities has the ability to reach almost all of them through its formidable telephone sales operation — which may be why it was as one of four global co-ordinators of the offering. The others are Goldman Sachs, JP Morgan and Mitsubishi UFJ Morgan Stanley Securities.
Retail investors will also play their part in demand via Nippon Individual Savings Accounts (NISAs) which were introduced in June and the three offerings could become Japan’s equivalent of the UK’s 1984 listing of British Telecom (also formerly part of a national post office) which was aimed at creating a shareholder culture among the men and women in the street.
Long-term institutional investors may, though, need more encouragement to bid for the shares than Japan Post having recognition name among the country’s 126 million people.
The population is falling, cutting levels of demand for everything from insurance to cars. Japan Post’s mailing operations run at a loss and its banking and insurance businesses are constrained in the products they can offer – no mortgages, for example — to prevent them from competing with entities which had to build their businesses without access to its once privileged position.
* Three days before Japan Post’s announcement the Ministry of Finance published the English-language version of the Fiscal Investment and Loan Programme’s FY2014 annual report which shows the extent to which the government relied on postal savings and insurance products plus people’s pensions contributions to supposedly prime the economic pump by building its now famous roads to nowhere.
© 2014 Japan Pensions Industry Database/Jo McBride. Reporting on, and analysis of, the secretive business of Japanese institutional investment takes commitment, money and time. This blog is one of the products of such commitment. It may nonetheless be reproduced or used as a source without charge so long as (but only so long as) the use is credited to www.ijapicap.com.
This blog would not exist without the help and humour of Diane Stormont, 1959-2012