-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --
By John Foley
LONDON (Reuters Breakingviews) - Japan’s earthquake has caused some alarming flows in capital -- human as well as financial. Investment bankers are reported to be leaving Tokyo amid fears of an impending nuclear catastrophe, with reports of trading desks all but closed for business. Yet unless the unimaginable occurs, most will return. Tokyo’s status as a financial hub, however challenged, should endure.
Global banks quickly said they were operating on a business-as-usual basis after the earthquake and tsunami of March 11. They could do little else. But as seismic risks turned to worries about unstable nuclear plants, tales spread of bankers taking their families and moving to safer locations such as Hong Kong and Singapore. While the official line mostly is still that desks are trading as ever they were, by March 17 Australia, France and the UK had begun to advise their citizens to consider leaving Japan.
Trading capacity in financial centres is more flexible than it was. Crises including the New York attacks of 2001 and the SARS epidemic of 2003 prompted global institutions to focus on the need to keep systems running when individual centres grind to a halt. In any case, many trades can be transacted electronically from anywhere. The vast majority of yen exchange trading is already done outside of Japan. Exchange-driven businesses like equities are harder to relocate, but global exchange consolidation may change even that.
But Tokyo retains big strength, notably huge domestic savings and the massive attendant demand for financial intermediation. Japan’s government pension fund, at $1.4 trillion, is the world’s biggest. Tokyo’s equity market capitalisation was 40 percent larger than Hong Kong’s at the end of January, according to the World Federation of Exchanges, yet unlike its rival, Tokyo’s is almost all home grown. Japan also has something China doesn’t -- a globally accepted reserve currency. Yen trades are close to 100 times the value of Japan’s international trade transactions, where China’s is roughly one-to-one.
In the long term, Tokyo faces some structural challenges. Expats complain, with good cause, about red tape, language barriers and a technology lag. Japan’s tax rate of 40 percent looks deeply unattractive next to Hong Kong’s 15 percent. Modernisation and openness should be high on the agenda. But short of a genuine cataclysm that leaves Tokyo uninhabitable, recent events are unlikely to make these matters significantly worse.
-- Sixteen banks signed a statement from Japan’s International Bankers’ Association on March 15 saying that they would continue business as usual, despite fears of radiation caused by a earthquake-hit nuclear power plant in the country’s north-east.
-- The banks, including the Japanese arms of Citi, Goldman Sachs, HSBC and Bank of America Merrill Lynch, said that “despite rumours to the contrary, none of the undersigned firms has announced any business closures or evacuation of staff”.
-- By March 17, governments from Britain to South Korea had begun to advise citizens to leave Japan or avoid unnecessary travel to the country. The U.S. State Department said it had chartered aircraft to help Americans leave some cities.
Editing by Robert Cole and David Evans