Mitsubishi Corp CEO Warns Japanese Stock Market Rally Faces Risks

Deep News
3小时前

Mitsubishi Corp's chief executive has cautioned that Japan's companies must deploy their cash more efficiently, or risk undermining the record-breaking equity boom as the country exits its era of ultra-low interest rates and bond yields climb to a 31-year high.

Katsuya Nakanishi, who leads Japan's largest trading house, pointed out that the nation is shifting from a zero-rate environment to a positive-rate one, with the 10-year government bond yield reaching 3%, describing it as "a choice between buying bonds or buying stocks."

He stressed: "I believe there will be problems unless we pay more attention to cash efficiency."

The Nikkei 225 index has doubled over an 18-month period and hit a record high above 72,000 points in June, but its trajectory has been unsteady in recent months.

Rising bond yields have been partly driven by Japanese Prime Minister Sanae Takaichi's spending plans, sparking market concerns that turbulence in the bond market could bring an end to the Nikkei 225's rally.

Shusuke Yamada, chief Japan foreign exchange and rates strategist at Bank of America, warned last month that if interest rates climb above 3.5%, the stock market could experience a "meaningful correction" and become "a big problem."

Japan's five major trading houses have benefited from Berkshire Hathaway becoming their largest shareholder.

As rising share prices have eliminated the conglomerate discount, analysts say trading houses need to persuade shareholders that they can extract higher profits from their portfolios, which span everything from copper mines and salmon farming to convenience stores.

Mitsubishi Corp expects its return on equity to rise from 8.5% to 11.5% this fiscal year, and aims to achieve above 12% return on equity next year on the basis of 1.2 trillion yen in net profit.

Measures include reviewing strategic options for 160 underperforming businesses, increasing debt financing, and implementing a 1 trillion yen share buyback last year.

Nakanishi also stated that in the age of artificial intelligence, Mitsubishi Corp needs to cultivate "liberal arts" thinking to go beyond narrow specialists or algorithms that act solely on data.

He gave examples such as applying insights from salmon farming regarding climate change to liquefied natural gas trading, or attempting to apply the loyalty system used by convenience store chain Lawson to European energy supplier Eneco to improve customer retention.

Mitsubishi Corp this week committed to investing $3.2 billion in the LNG Canada Phase 2 project.

This major natural gas export project will strengthen Asia's energy security and further diversify Mitsubishi Corp's global LNG footprint.

Nakanishi said that if Japanese utility companies do not renew supply contracts, LNG Canada could help Japan replace supply from Russia's Sakhalin-2 project.

However, he emphasized that Japan will not abruptly exit this controversial project.

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