FX house of the year – Japan

It is said that smooth seas don’t make for skilful sailors – and today’s foreign exchange market is no exception. This year, corporates and institutions in Japan looking for a steady hand in the storm of geopolitical uncertainty have looked to Nomura for their FX needs, and have not been let down. Anant Swarup, head of flow macro, Asia ex-Japan, provides a clearer picture of the challenges the bank has met and overcome over the past year, and of its strategy going forward

In a challenging wholesale business environment, Nomura has responded with a concerted effort to deepen niche offerings such as structured products. While flow has been challenged by a prolonged low-volatility environment – until picking up in the past few months owing to political and macroeconomic factors – the bank has chosen to focus on what it does best: market-making for larger transactions with a risk element while also enhancing efficiency, increasing its use of technology and making its sales force more cross-product. 

 

How has your strategy evolved over the past year in response to the market?

Anant Swarup: There was a time when banks tried to offer everything to everyone – but that cycle has turned, even for the larger banks. They’re trying to do a few things well and focus on what’s profitable. Our clients expect us to innovate for them – we are able to provide unique offerings based on their balance sheet needs, providing risk management and liquidity in challenging markets. 

 

Is there an upside to volatility, and how can clients adjust their portfolios accordingly?

Anant Swarup: Macro businesses such as flow rates and FX are profitable in volatile environments. This is due to a combination of increased client activity and market opportunities for traders. Client portfolios also need to be rebalanced with changing market levels. As an example, structured callable trades may get called if rates keep rallying, and investors would need to make decisions such as whether to reload duration or hold off.

 

How are macro factors such as trade tensions affecting FX markets, and what kind of opportunities do these factors present for clients?

Anant Swarup: The current macro-political environment is quite uncertain with multiple themes. On one hand, the terms of trade between several key nations are being renegotiated. On the other, there is a deep slowdown in the global manufacturing cycle, causing various central banks to turn dovish. This is causing significant stocks of bond yields to turn negative. Both of these themes have deep implications for the US dollar, and clients who would previously have left their exposures unhedged will come in and actively hedge their risks with us.

 

Is the world of FX likely to be disrupted by startups? What gives banks a defensible position in a fragmented market?

Anant Swarup: If we look specifically at the Flow FX business, a bank’s platform has several synergies for institutional clients. Banks have legal documents in place with institutional clients such as the International Swaps and Derivatives Association credit support annex, which take considerable resources to put in place and allow for a deep multi-product relationship. 

Banks are also regulated, and work to provide clients with best execution. This would perhaps be difficult for a young FX startup to deliver without substantial investment into trade supervision and compliance. Also, for corporate clients, FX services originate as a component of a broader relationship, such as merger and acquisition deals or financing. As such, this business has very high barriers to entry.

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