The deal comes in the wake of Citadel CEO Ken Griffin’s bullish statements on Japan back in June 2023 and Citadel’s reopening of an office in Tokyo (the firm originally closed its Tokyo office in 2008 after Lehman Brothers shuttered).

At the time, Griffin, speaking to the NIKKEI, noted: “It’s actually a very exciting time to be involved in Japan because of this shift in Japanese companies being much more focused on generating success for their shareholders and growing their businesses globally.”

Established in 2021, Energy Grid is a provider of risk management solutions to Japanese businesses, helping them navigate price volatility in the energy sector, in particle the electricity market. 

Citadel’s commodities division led the deal. The large alternative investment team has experience mitigating commodity supply and demand risks, including volatility in natural gas and electricity.

“Energy Grid has cemented its reputation as a trusted partner to the Japanese power industry,” said Sebastian Barrack, head of commodities at Citadel, following news of the partnership.

“We will strengthen this partnership by integrating Citadel’s experience in customer-led transactions and risk management with Energy Grid’s local expertise,” Barrack added.

Yohei Jozaki, CEO of Energy Grid, said, “This strategic transaction with Citadel marks a pivotal moment for Energy Grid to build on our success and realize our vision of building a stable and efficient power market in Japan.”

Looking ahead, Jozaki expressed an intention to leverage Citadel’s reputation in finance and operations “to expand trading volumes and offer longer-term risk management opportunities to more market participants.”

Japan is the world’s fourth-largest importer of oil, much of it coming from the Middle East. Moreover, the country’s electricity sector was disrupted in 2011, following the 2011 Great East Japan Earthquake and Fukushima nuclear disaster, which saw electricity generation via nuclear drop from 25% to a fraction of supply today.

The BoJ had controlled the yield curve and maintained negative interest rates since 2016 in an effort to stimulate economic growth and combat deflation. The decision by Governor Kazuo Ueda to shift gears brought Japan its first rate hike in 17 years. The central bank will no longer hew to target yields for 10-year government bonds, allowing long-term interest rates to rise.

Some view Ueda’s move as a milestone marking Japan’s transition to a more normal economic environment. Others see it as merely a small step toward normalization, a sign of the BoJ’s confidence in overcoming deflation.

Internationally, the shift has renewed investor interest, making Japan a more attractive investment destination. Even before the announcement, Japan’s Nikkei 225 stock index, on the back of robust corporate earnings and a weaker yen, had surpassed 40,000 for the first time.

“We expect Japan to be one of the top-performing markets between 2023 and 2030,” Jefferies analysts opined. “The great shareholder return story in Japan has begun.”

Domestically, discussion focuses on the monetary policy shift’s impact on wages, inflation and consumer spending. While higher interest rates may lead to stronger wage growth, Japan insiders share concerns that inflation rates could outpace wage increases, impacting consumer purchasing power. Questions remain, too, about the BoJ’s future policy adjustments. Japan watchers are keen to read the central bank’s outlook report this month, which is expected to flesh out the reasons behind Ueda’s historic policy change.

When its Japan Climate Transition Bond Framework was first announced last November, a government statement said, “Through [green transformation, or GX] realization, Japan aims to achieve its international commitment, i.e., 46% reduction of GHG [greenhouse gas] emissions by FY 2030 compared to FY 2013, and carbon neutrality by 2050.”

Japan has committed to issuing some ¥20 trillion ($133 billion) of GX-enabling bonds over the next decade; some ¥800 billion each of five-year and 10-year bonds were to have been issued in February and another ¥1.4 trillion in FY 2025. 

Dai-Ichi Life Insurance Company Limited was an early buyer of the bonds. In a statement last month, Dai-Ichi said, “Through this investment, the company aims to provide financial support for initiatives aimed at realizing carbon neutrality and strengthening the country’s industrial competitiveness.”

As that suggests, backers expect GX-enabling bonds not only to spur economic growth but to finance emerging technologies such as semiconductors and next-generation batteries: important elements in achieving Japan’s emission reduction targets. They also align with the country’s commitment to mitigate risks associated with climate and geopolitics. Both risks have come to the fore in recent years; climate risks such as sea level rise, floods, and even tsunamis are a constant risk for the island nation. Geopolitically, energy-poor Japan has typically relied on the Middle East and Russia to supply its energy needs; 95% and 4% of its crude oil comes from the one and the other, respectively. And Japan is the world’s second-largest importer, after China, of liquid natural gas (LNG).

Incorporating equity and debt financing, this class of shares—issued to balance growth investment with a high level of shareholder returns while making growth investments in advanced telecoms, IT technologies and next-gen social infrastructure—was offered in a regulatory filing on Sept. 25. The issuance of this kind of bond-type shares is a first in Japan.

The shares cannot be converted into common shares later—nor do they confer voting rights. Rather, they are designed to minimize the impact on existing holders of common shares, while also being a useful financing option to increase equity capital.

The hybrid shares—“recorded as equity for accounting purposes”—provide a set dividend and can be redeemed for cash by SoftBank after five years. At that point, the company can redeem them at an amount equal or greater in value than the issuance price, the company added. In other words, the securities are like callable bonds. The company notes that the annual dividend is set at between 2.5% to 3%.

SoftBank, the telecoms arm of the SoftBank Group, first made the announcement in March, pending board approval. The shares were listed on the Prime Market of Tokyo Stock Exchange, making it available for investment by retail investors, on November 2nd.

SoftBank’s announcement comes at a topsy-turvy time for the firm. At its lowest point, both SoftBank and the SoftBank Vision Fund, a $100 billion fund launched by the SoftBank Group, invested heavily in real estate startup WeWork, which filed for bankruptcy in November. That venture cost both companies around $11.5 billion in equity losses, with another $2.2 billion in debt still up for grabs.

The Vision Fund has also been the subject of a recent regulatory probe. The co-founders of social media app IRL allege in a lawsuit that SoftBank unfairly shut it down, despite touting its valuation at $1 billion. In total, Vision Fund investments lost some $32 billion in 2022.     

Financially pressed Rakuten Group has applied to list its online brokerage unit, Rakuten Securities, on the Tokyo Stock Exchange (TSE) in July. With the offering, expected to raise around ¥100 billion ($721 million), the Tokyo-based technology conglomerate and e-commerce giant aims to optimize its management, expand its customer base and broaden its retail services. The move follows a string of losses by Rakuten, owing in part to capital expenditures on base stations for the group’s telecom business. Analysts say Rakuten has struggled to manage its debt levels and wring a profit from its resource-draining mobile operations, launched in 2020. Listing its money-making financial subsidiary is intended to offset the losses and rising debt obligations.

Early last year, net income at the brokerage unit grew 2.8%, reaching ¥9.3 billion, as client assets under custody expanded due to increased stock trading by investors, the Japan Times reported. By fall, Mizuho Financial Group agreed to buy around 20% of Rakuten Securities, generating ¥77.5 billion ($536 million) for the group, according to the Nikkei.

By March of this year, however, Rakuten Group’s net loss came to ¥82.5 billion and its shares stumbled to a 14-year low, according to reports. A month later, the company took steps to improve its financial picture by taking Rakuten Bank public on the TSE and selling shares in an additional offering, raising ¥300 million ($2.2 million).

Despite these moves, profitability challenges persist across Rakuten Group’s companies, which include online shopping, finance and wireless communications services. In June, Japan Credit Rating Agency downgraded the group.

By contrast, Rakuten Securities, which was launched in 1999 as “the first dedicated online brokerage service in Japan,” according to a company statement, had over nine million customer accounts, putting it on a par with SBI Securities, Japan’s leading online brokerage.

At the time of writing, the listing schedule for Rakuten Securities Holdings—the new listed company—was yet to be determined, pending approval by the TSE and the results of an examination by the Japan Exchange Regulation.

In April, Norway’s sovereign wealth fund said it would vote against all-male board nominations of Japanese companies in its portfolio, a step aimed at increasing gender diversity at the highest levels of corporate Japan.

“We believe in diverse boards and expect a minimum of 30% representation of women,” said Carine Smith Ihenacho, the chief governance and compliance officer at Norges Bank Investment Management (NBIM), in a statement.

“NBIM,” she continued, “has voted against companies in Europe and the US due to lack of women on boards. Now we will do the same in Japan, starting with companies with all-male boards, affecting around 300 companies.”

NBIM is the investment management division of the Norwegian Central Bank, tasked with investing the Norwegian Government Pension Fund Global, and had 14.7 trillion Japanese yen in (about $10.5 billion) 2021 invested in Japan, the second-largest nation with exposure to the fund.

In 2022, the investor held shares of some $64 billion in 1,533 listed companies in Japan, or around 4% of the total foreign ownership in Japanese shares, the Nikkei reported. NBIM’s policy will start this year, while board elections in Japan usually take place in June.

Japan Inc. business expert Rika Nakazawa notes the move by NBIM, the world’s largest sovereign wealth fund, with $1.25 trillion of assets under management, will speed up gender diversity in corporate Japan and globally. “With the motion, we might perhaps see other investment groups follow suit—to galvanize greater action and achieve better and accelerated outcomes,” she says.

Nakazawa has extensive experience in corporate Japan and the US. In her 2021 book, Dear Chairwoman: Letters From Today’s Trailblazing Women Board Leaders to the Fearless Directors of Tomorrow, she records the voices of women on boards around the world.

“According to Spencer Stuart’s 2022 Nordic Board Index in Norway, 39% of all board members across the region were women, a slight increase from 37% in 2020 and 38% in 2021,” Nakazawa points out. This stands in stark contrast with Japan, she adds, which is in “one of the lowest positions of the G20 in terms of gender-diverse board composition.”

On February 10, Japanese Prime Minister Fumio Kishida nominated Kazuo Ueda as the next Governor of the Bank of Japan (BoJ). Ueda is set to take over from Haruhiko Kuroda, whose reign at the top of the central bank comes to an end April 8.

The governor-nominee will have his plate full when he takes over in the spring, with the market keen to see whether—and how soon—he will deviate from some of the outgoing Kuroda’s more controversial policies. Masamichi Adachi, Japan Chief Economist at UBS, sees a balance between a hawk and a dove in Ueda.

Under Kuroda, the BoJ oversaw monetary easing leading to the central bank being the largest holder of Japanese government bonds, buying large amounts of domestic ETFs, and implementing a controversial yield-curve control program. And that’s not to mention short-term negative interest rates.

Although these policies led to a tripling of share prices, one side effect was increasing debt and, in part, devaluing the Japanese currency—the yen fell to a 32-year low against the dollar last fall.

Ueda is expected to veer from Kuroda’s path slowly. Nonetheless, he called it “appropriate” to continue monetary easing—albeit with a sharp eye for side effects during a February 24 session of the Diet’s lower house.

As the BoJ’s target of 2% inflation is approached—towards year’s end, according to some predictions—Ueda is prepared to shift. “If it does reach a phase of 2%,” Ueda told the lower house, “I believe that it is my responsibility to ensure that normalization is carried out at the right time.” If target inflation seems difficult, however, “We will take steps to continue some form of monetary easing while mitigating side effects,” he added. “I believe that it is my greatest mission to make sure that such decisions are not made incorrectly.”

In 2022, regional banks in Japan underwent an increased reorganization amid a market decline due to an aging population, relocations to major cities and accelerating industry digitalization—not to mention low interest rates.

Aomori Bank and Michinoku Bank, which are in the northern prefecture of Aomori, merged to launch Proclear Holdings, a move that provided the new entity a 70% share of the local market.

Meanwhile, Aichi Bank and Chukyu Bank merged to create the wholly owned subsidiary Aichi Financial Group. Both banks have been in the central Japan prefecture of Aichi. According to an industry report, similar mergers have recently occurred in Fukuoka and Nagano prefectures.

These consolidations coincide with policies by the government, the Bank of Japan (BoJ) and the country’s financial regulator, the Japan Financial Services Agency (JFSA), to promote regional bank mergers to sustain profitability in the sector, according to Japan insiders.

In 2020, for instance, the BoJ announced a two-year plan to provide an additional 0.1% interest on the balance sheet of current account deposits held by regional banks at the nation’s central bank if they underwent a reorganization or M&A, the Japan Times reported.

While the decline of regional banks in Japan can be traced as far back as the mid-1980s and 1990s, led mainly by a series of bankruptcies up until around 2003, the precipitous drop since the mid-1990s has been mainly due to mergers and acquisitions, experts note.

Yet there has been tension within Japanese institutions regarding the wisdom of such mergers. The Japan Fair Trade Commission (JFTC), for example, has in the past been loath to promote regional bank mergers owing to concerns over monopolies in certain regions, explains Frank Packard, a Tokyo-based financial adviser.

In 2019, however, the JFTC revised its antimonopoly guidelines and relaxed its guidance concerning M&As in this area, which is now deemed legal under certain circumstances. One effect of the revision is that the JFSA is now tasked with monitoring banks to see if they increase interest rates following such mergers.

Haruhiko Kuroda’s tenure as governor of the Bank of Japan (BoJ) is coming to an end on April 9.

Kuroda’s 10-year reign, which consisted of two five-year terms, is the longest in the BoJ’s 140-year history. It’s also marked by one of the most zealous stimulus programs, leading to ultralow interest rates and the BoJ becoming the largest owner of stocks and government bonds in Japan.

Japanese Prime Minister Fumio Kishida will nominate a new head of the BoJ perhaps as early as February. Three main candidates are in the running: Masayoshi Amamiya, Hiroshi Nakaso and Hirohide Yamaguchi.

Amamiya has been deputy governor of the BOJ since 2018; his tenure will end on March 19. Nakaso, deputy governor of the central bank from 2013 to 2018, is currently chairman of Fin.City Tokyo, an organization that promotes Japan’s capital as a financial center. Yamaguchi, meanwhile, was the deputy governor of the BoJ between 2008 and 2013. So, who will replace Kuroda?

Traditionally, governors of the BoJ alternate between former officials of the Ministry of Finance (MoF) and the central bank, Japan expert Jesper Koll says. Since Kuroda hails from the MoF, it’s time for someone from the BoJ. All three candidates fit the bill, but Yamaguchi is the outsider, given his criticisms of PM Kishida’s policies.

The successor’s priorities should align with the BoJ’s priorities—central bank independence and liberalized capital markets. By contrast, the MoF “is more interested in controlling markets and prioritizing low debt costs,” explains Koll. 

The BoJ has already started to signal a transition from kuroda’s “extraordinary” monetary policy: long-term bond yields will be allowed to rise further; the 10-year yield is likely to expand from the current 0.5% to 2.5%; and the country’s three-decade long deflation period is set to end, Koll predicts.

In an effort to speed up the decarbonization of the shipping industry, the Development Bank of Japan (DBJ) and ClassNK combined forces to establish a zero-emissions acceleration and ship financing program.

Under the program, ClassNK will evaluate ships based on a comprehensive scoring model jointly developed with the DBJ. ClassNK, or Nippon Kaiji Kyokai, is an independent, non-profit association that provides ship classification and related services. When assessing a ship under the program, ClassNK considers three main criteria: decarbonization efforts; environmentally friendly performance; and zero-emissions-related innovation. The DBJ, meanwhile, will provide transition financing that allows shipping companies to purchase vessels that have been assessed and meet the criteria under the program.

The DBJ and ClassNK’s program comes at a time when momentum is gathering for decarbonization efforts across industries—a period of transition that is expected to increase costs for companies, including ship operators.

“This shift [to decarbonization] could be costly, since the price gap between alternative fuels and fossil fuels is particularly evident in the shipping sector,” a January 2022 report by McKinsey & Company notes.

“And because ships are long-lived capital assets (the average age of a merchant vessel is just over 20 years),” the report continues, “shipping companies have little incentive to replace relatively young assets with lower-emissions models.”

The DBJ’s loans are intended to provide that incentive, making the transition to decarbonization smoother for ship operators. Indeed, the first project under the DBJ-ClassNK joint program came to fruition earlier this summer.

ClassNK evaluated the Crystal Oasis, a liquefied petroleum gas (LPG) dual-fueled carrier owned by Kumai Navigation, a Japanese shipping firm based in Singapore. The DBJ financed Kumai Navigation’s acquisition of the ship in June.

The Crystal Oasis is a state-of-the-art ship largely powered by LPG, a clean fuel that “reduces sulphur oxide, carbon dioxide, nitrogen oxide, and particulate matter when compared to fuel oil,” according to industry research. Crystal Oasis received ClassNK’s S rating, the highest rank in the joint program.