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BOJ decision surprises everyone

Following the Bank of Japan's decision today to hold monetary policy steady, Lisa Yano, corporate transactional partner at Hogan Lovells in Tokyo, comments on the impact on both the Japanese domestic market and outbound M&A…

It seems the Bank of Japan has surprised everyone by deciding not to do any further easing at this time, while acknowledging continued weakness in the economy and pushing out the date for hitting the 2 per cent inflation target. This decision may perpetuate the strengthening of the yen that we have seen in the wake of the BOJ's introduction of negative interest rates in January and a further drop in stock prices."
 
The fundamental concern that the Japanese domestic market is no longer sufficient to sustain Japanese companies on its own is quite profound and I expect to continue seeing strategic outbound transactions as Japanese companies identify deals that will help them sustain and expand their businesses. Similarly, while a strengthening yen may dampen enthusiasm for Japan-bound deals, there are strategic opportunities as Japanese industries consolidate and restructure, and overseas companies can be expected to take advantage of those opportunities where they make sense. Foxconn's agreement to acquire Sharp is a good example of this. It is remarkable to see this household name coming under foreign ownership, and it is possible the Sharp transaction may help overcome the lingering resistance to foreign acquisitions of Japanese public companies.
 
From a deal perspective, I would expect today's decision to drive further outbound M&A activity, although there are some factors at work in the world right now that may give Japanese companies pause, including the possibility of Brexit in the EU and uncertainties arising from the upcoming Presidential election in the US Major Japanese companies do not ordinarily comment on overseas policy issues but have spoken out strongly against Brexit and warned of its potential impact. Separately Donald Trump has made critical statements of Japanese economic and security policies that have made people in Japan quite uneasy as to how the US-Japan partnership would be impacted under a Trump administration.

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