In 2002 the figure was below 20%: for a country famed for its technological prowess, Japan has been slow to switch from more traditional methods of bond sales to the electronic platforms that are the standard in Europe and the US. The main reason for this lag is all too human: the rise of electronic trading platforms will adversely affect the profit margins of the dealers that are being encouraged to adopt them.
“E-trading tends to increase transparency in a market, “ says Neil Katkov, manager of Celent’s Asia Research group and author of the report. “This will cause price spreads to narrow, denting the profits of the dealers.”
The more plain-speaking dealers in Japan’s $5.6 trillion government bond market admit that they are reluctant to adopt electronic trading platforms. As Tsuyoshi Ando, head of debt capital markets at Mizuho, says: “For a dealer it doesn’t make sense to display all prices at the same time – it’s better to make deals over the phone. The investor base is large enough that the market doesn’t need e-trading for now.”
That is likely to change. The privatization of Japan Post will mean that the largest single investor in Japanese government bonds will most probably not be buying on the scale that it was.