SMFG targets $5 billion trading revenue as Japan rates reset markets

Sumitomo Mitsui Financial Group plans to double revenue from its sales and trading unit to 800 billion yen, or about $5 billion, within the next few years as Japan’s shift away from ultra-low rates drives demand for market products.

Arihiro Nagata, head of the bank’s global markets division, told Reuters that the business currently generates about 400 billion yen in revenue.

He said the target was achievable in “about six years” on a conservative timeline.

The push reflects a broader shift in Japan’s financial markets.

After years of deflation and near-zero interest rates, higher yields, currency swings and record equity prices are creating more trading opportunities for banks and their clients.

Japan’s market reset lifts demand

Nagata said normalising interest rates have led to a clear increase in client activity.

“With interest rates normalising there’s a significant increase in cases where we’re being asked to trade,” he said.

“Demand for JGBs, yen interest rate swaps and Japanese equities is on the rise, among foreign investors too.”

The change marks a sharp break from Japan’s long period of subdued market volatility. For years, ultra-low rates limited demand for hedging and trading products.

Now, as yields rise and investors reassess exposure to Japanese assets, banks with stronger markets platforms are better placed to benefit.

Concerns about inflation and Japan’s public finances pushed the 10-year Japanese government bond yield to a 30-year high of 2.8% last month.

Japanese stocks also climbed to a record, with the Nikkei closing above 68,000 for the first time.

That backdrop has increased demand for products linked to government bonds, interest-rate swaps, foreign exchange and equities.

Foreign investors take bigger role

Investor flows have also changed significantly.

Nagata said domestic investors accounted for about 70% of SMFG’s yen interest rate swap flow during the zero-interest-rate era. Now, foreign investors make up about 70%.

That shift shows how Japan’s market normalisation is drawing more international participation.

Foreign funds are increasingly active in yen rates and Japanese equities as they respond to rising yields, currency moves and record stock prices.

For SMFG, the change offers an opportunity to expand beyond traditional domestic banking activity.

A larger foreign investor base can increase demand for liquidity, hedging and structured products, supporting the bank’s goal of growing trading revenue.

SMFG reorganises trading operations

SMFG, Japan’s second-largest lender, has reorganised its trading operations to better integrate functions across its banking and securities arms.

The bank is also looking for ways to build on its alliance with Jefferies, in which it holds a 20% stake.

The partnership gives SMFG a stronger international platform as it tries to compete more effectively in global markets.

“At last it feels like a globally connected team,” Nagata said.

The reorganisation is part of a broader effort to catch up with peers that expanded their markets businesses earlier as Japan’s rate environment began to change.

Volatility favours trading over lending

Nagata argued that a stronger sales and trading franchise puts SMFG in a better position when markets are volatile.

“When volatility is up, rather than having the commercial bank front and centre, sales and trading is the way to go,” he said.

That marks an important strategic point.

Traditional banking relies heavily on loan growth and credit demand. Sales and trading, by contrast, can benefit when clients need to manage risk during periods of market stress.

Higher volatility can boost activity in bonds, swaps, currencies and equities as investors and companies hedge exposures or adjust portfolios.

For a bank seeking to diversify earnings, a larger trading business can provide a different source of revenue.