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Japanese retail FX brokers’ revenues drop over 20%; further consolidation expected

Trading volume and revenues remain depressed for most Japanese retail FX brokers despite a steady flow of new accounts and deposits, according to research from consultancy group Aite.

As reported previously by EuromoneyFXNews, Japan is the world’s second-biggest retail FX centre after the UK, with average daily volumes predicted to hit $114 billion by 2013. Aite, which draws on a proprietary database of brokers, as well as survey data and official statistics, says average revenue across the FX retail industry in Japan has fallen 24% on December 2009 levels.


 Source: Aite Group, FFA of Japan

The consultancy says that while on the surface the top-20 brokers in Japan had only an 8% drop in revenue over the period, the reality is that several medium-sized brokers have experienced trouble staying afloat.

That is because the March 2011 Fukushima earthquake and the subsequent sharp drop in Japanese stock markets removed a much-needed source of liquidity for publicly listed FX and securities brokers, the effects of which can be seen across the industry.

Himarawi Securities, for example, announced it would lay off 75% of its workforce and hand over majority ownership of the firm to IS Holdings, the parent company of Gaitame Online, the leading Japanese retail FX broker by trading volume.

Aite says the solutions pursued by Japanese brokers to get around lower volume have included lowering spreads, providing liquidity to emerging Asian FX brokers, and diversifying earnings by adding new product lines.

“Some of the underperforming firms had a late start in retail FX, while others lagged in terms of technology or failed to hit the right marketing notes to grow their business,” Aite says.

 Top ten Japanese retail FX brokers by daily trading volume 2011
(in $billion and annual % change)

 Source: Aite Group

Some of the higher volume seen by large Japanese FX brokers is explained by their ability to secure business across Asia. SBI Securities, for example, the seventh-biggest Japanese retail FX firm by volume, is active as a provider of FX liquidity and white-label services to brokers in South Korea, Hong Kong, Vietnam and Singapore.

Aite believes the period of consolidation in Japanese retail FX will end once a recovery via an increase in FX volatility begins in earnest, or when the remaining participants grow to become large firms with 200,000 or more accounts.

“We anticipate that four more Japanese brokers in general will exit the business in 2012,” the consultant says. “The period of consolidation, in other words, is just shy of a climax that will augur a period of sustainable growth for the remaining firms.”

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