Sumitomo Mitsui Financial Group (SMFG), Japan’s second-largest lender, is setting an ambitious target to double revenue in its sales and trading business to 800 billion yen ($5 billion) within the next few years. Currently sitting at approximately 400 billion yen, the financial giant aims to achieve this growth conservatively within about six years, according to Arihiro Nagata, head of SMFG’s global markets division. This strategic push marks SMFG’s effort to close the gap with competitors who have bolstered their market operations recently. Its sales and trading division provides market liquidity, along with hedging and investment products, to both investor and corporate clients.
The increased demand for trading products is being fuelled by a confluence of market factors, including rising interest rates, significant currency swings, and record-high stock prices in Japan. Nagata noted a substantial increase in requests for trading services, particularly for Japanese Government Bonds (JGBs), yen interest rate swaps, and Japanese equities, with foreign investor participation soaring. The 10-year JGB yield recently reached a 30-year high, while the Nikkei 225 index closed above 68,000 yen for the first time, reflecting a dynamic market environment. The shift is evident in yen interest rate swaps, where foreign investors now constitute 70% of the flow, a stark contrast to the previous 70% domestic investor dominance during the zero-interest-rate period.
SMFG believes its sales and trading business is better positioned to capitalise on market volatility than traditional bank lending models. The firm has restructured its trading operations to better integrate functions across its banking and securities arms, fostering a more globally connected team, Nagata stated. SMFG is also exploring opportunities to strengthen its alliance with U.S. investment bank Jefferies, in which it holds a 20% stake. Rivals such as Nomura are similarly adjusting their trading desks, hiring in areas like macro business, which typically thrives during periods of heightened market fluctuation. This strategic repositioning reflects a broader industry trend towards leveraging market dynamics for growth.
