Japanese megabanks hit valuation landmark as BoJ weighs rate rise

Good morning and happy Friday. In today’s newsletter:

Japan’s biggest banks are nearing a key valuation level for the first time in almost a decade as investors bet that the Bank of Japan will raise interest rates today and accelerate its normalisation of monetary policy.

MUFG, the country’s biggest bank by market capitalisation, is trading above its book value — the point at which investors value the bank as being worth at least as much as the assets on its balance sheet — according to Goldman Sachs data.

Its closest rival, SMFG, is trading at its book value, while Mizuho, the third-largest lender, is close to the same point after the banks’ share prices hit multiyear highs. Analysts said they believed the levels could be sustained as rates rise.

The BoJ is widely expected to raise interest rates today by a quarter of a percentage point to 0.5 per cent, based on evidence that a risk of deflation has receded and that companies across the board are now locked in a cycle of raising wages that will help to sustain prices. 

Read more about the milestone moment for Japan’s megabanks.

Here’s what else we’re keeping tabs on today and over the weekend:

• Economic data: Japan reports December inflation data and Taiwan publishes advance fourth-quarter GDP.

• Singapore: The city state announces its monetary policy decision.

• Middle East: Israel and Lebanon are in talks to extend the ceasefire between Israel and Hizbollah by 30 days when it expires on Sunday.

• Holiday: India marks Republic Day on Sunday, celebrating the country’s constitution coming into force in 1950.

How well did you keep up with the news this week? Take our quiz.

Five more top stories

1. A record number of US companies in China are thinking about moving some operations out of the country or are already in the process of doing so, as geopolitical tensions rise with Donald Trump’s return to the White House. The findings come from the annual survey by the American Chamber of Commerce in China.

• Related news: The frontrunner to become Germany’s chancellor has warned companies about the “great risk” of investing in China, saying the state under his leadership would not help them if such bets failed.

2. Donald Trump has called on Opec to push down global oil prices and demanded that central banks around the world lower interest rates “immediately” afterwards. The new US president used his speech to executives in Davos yesterday to insist that companies around the world manufacture their products in the US — or face sweeping tariffs.

• More from Davos: Investors at the gathering warned of Europe’s vulnerability to Trump’s “America First” policies, while one bank executive spoke of “peak pessimism” on the continent.

• More US news: A federal judge has blocked Trump’s executive order denying US citizenship to children born in the country to unauthorised immigrants, dealing a blow to his immigration clampdown.

3. One of Japan’s biggest media companies is under pressure from major shareholders and suffering an exodus of advertisers over its handling of allegations involving one of the country’s best-known television stars. Read more about the crisis at Fuji Media.

4. Chipmaker SK Hynix has beaten larger rival Samsung on quarterly profit for the first time. SK Hynix leads the tech giant in advanced memory chips, producing robust sales that it expects to double this year as a boom in artificial intelligence data centres continues. Here’s more on the AI competition in South Korea.

5. Chinese authorities have sought to boost the stock market and restore confidence in the world’s second-largest economy by telling local insurance companies and mutual funds to invest more in domestic stocks. The policy shift could mean that up to Rmb500bn ($68bn) could flow into the market from China’s three biggest state-owned insurers alone, according to an FT analysis of last year’s policy premiums.

FT Magazine

Last month our Tokyo bureau chief Leo Lewis rode the shinkansen with Rahm Emanuel, then the US ambassador to Japan, who was making his final journey on the beloved bullet train before returning to the US and a very different political climate. Emanuel discussed Donald Trump’s return — “you can’t be lethargic against this guy” — and delivered a parting shot to China.

We’re also reading . . . 

Chart of the day

In a few short years, excitement about anti-obesity drugs made Novo Nordisk Europe’s most highly valued company and Eli Lilly the biggest pharma group in the world. Just as quickly, investors are losing their appetite for the trade as analysts question the size of the market for the groundbreaking treatments.

Take a break from the news . . . 

Putting algorithms to better use, exercising judgment, and rethinking diversity and inclusion are some of the topics covered in this month’s round up of the best business books.