What's going on?
On Friday, Japan’s biggest bank, Mitsubishi UFJ Financial Group (MUFG), announced plans to buy German DZ Bank’s “aviation finance” business for $6 billion.
What does this mean?
This isn’t MUFG’s first international spending splurge: it splashed $3 billion in October to acquire the Commonwealth Bank of Australia’s global investment management business. And it’s not alone: in December, Japanese industrial giant Hitachi announced a $6 billion deal to purchase a European business. That’s the same month as Japan’s Takeda Pharmaceutical confirmed its $59 billion takeover of Irish biotech company Shire.
Japanese firms have set acquisition records as they look overseas for growth. The triple-threat of an aging workforce, a shrinking population and stubbornly low inflation make economic growth – and therefore earnings growth – hard to come by at home.
Why should I care?
For markets: MUFG would rather fly than sail.
In aviation finance, banks loan companies money specifically to fund aircraft purchases – and, in the event of a default, they may seize the aircraft to sell and recoup any losses. Consistently high demand for planes from airlines could make writing such loans an attractive business for MUFG – more so it seems than the shipping finance segment also on offer at DZ Bank, which MUFG declined to purchase. MUFG may agree with shipping magnate Maersk, which recently cast a pall on the global sea freight industry’s growth thanks to trade uncertainties.
The bigger picture: Even more reason to look further afield.
Japanese companies’ wandering eyes may have been vindicated on Friday: a survey of industrial businesses showed the country’s level of manufacturing activity declined in February for the first month in almost three years. And the story was similar across the rest of Southeast Asia, according to further data released on Friday. Falling export orders were a recurring theme across countries’ reports, affirming some economists’ predictions that the US-China trade war would hit the region.