7. Abenomics and Treasury Unit's nimble portfolio management

In December 2012, the general election of the House of Representatives (the lower house of the National Diet) brought to power the Liberal Democratic Party and its coalition partner New Komeito. The new administration was led by Shinzo Abe, who served a second stint as prime minister of Japan. It launched a set of economic policies known as Abenomics, which centered on three arrows of drastic monetary easing (first arrow), flexible fiscal stimulus (second arrow), and growth strategies to encourage private investment (third arrow). In line with these policies, the Bank of Japan (BOJ) initiated its quantitative and qualitative monetary easing policy in April 2013.

The announcement of Abenomics gave rise to expectations for the Japanese economy to come out of the deflationary spiral and head toward recovery, which was reflected in a jump in the Nikkei 225 from 10,395 at the end of 2012 to 12,397 at the end of March 2013. In the foreign exchange market, the excessive yen appreciation was unwound. The Japanese yen was appreciated from the summer of 2011 to break through the 80-yen-per-dollar threshold before abruptly beginning to depreciate due to the announced new economic policies, falling past 100 per dollar in May 2013.

SMBC’s Treasury Unit quickly responded to the abovementioned major policy changes brought by the new administration, and substantially reorganized portfolios in a timely manner. Specifically, anticipating a decline in returns on Japanese government bonds, stronger domestic stock markets, and a depreciation of the yen, the Unit reduced the Japanese bond portfolio while increasing investment in Japanese stocks (stock index) and expanding positions to take advantage of the movement in foreign exchange.

Subsequently, responding to the BOJ’s additional monetary easing measures, the yen further weakened to reach 120 yen per dollar, and the Nikkei 225 exceeded 17,000 at the end of 2014 and reached over 20,000 in April 2015 for the first time in 15 years, the last time being in April 2000. Once again, the Treasury Unit effectively captured the phase of the strong domestic stock market and the trend toward a weaker yen to contribute to increasing the net business profit of SMFG.