Cash margin squeeze benefits Japan forex derivatives dealers

Derivatives dealers in Japan are in demand, as spread compression in vanilla foreign exchange has prompted foreign banks to look elsewhere for margin.

The growing number of domestic banks in Japan now participating in the forex market has speeded up the margin compression seen in the rest of the world, and reportedly prompted banks such as Merrill Lynch, Morgan Stanley and JP Morgan Chase to build up options and structured products. "People are trying to increase the margin of more complicated structured products," said one head hunter in Tokyo. "That seems to be where a lot more people are going."

He said demand for foreign exchange derivatives and, in turn staff, has come from increased currency volatility brought on by uncertainty over the US election and high oil prices. And with Japanese interest rates in the doldrums "there's a hunger to try and find some kind of an investment that will give a better yield", said another head hunter in Tokyo. "To accommodate these higher-yielding needs, we're seeing an increasing number of derivatives people working inside investment banks," he said.

An official at Morgan Stanley said this has been an area of growth throughout the year. The bank hired Toshiyuki Tomita from Goldman Sachs in Tokyo, as a forex sales manager, covering spot, forwards and options in July. Among other rumoured hires is JP Morgan Chase's apparent appointment of Jacques Takahashi as a structured products trader from the former Credit Agricole Indosuez, although the bank did not confirm this. Merrill Lynch declined to comment on its rumoured build-up in the region.

The interest is largely from foreign banks as Japanese institutions have yet to come up with similar products. "They are more at the lower end of the food chain of the food chain," said one recruiter. "FX spot and forwards – that's their focus."

As such, recruitment consultants in the region said firms with a strong presence in Japan would be the ones to continue attracting decent derivatives staff. But with year-end approaching, banks are unlikely to hire now, as bonuses would have to be guaranteed – potentially spelling a flurry of activity in the new year. "A lot of firms are being circumspect and looking at who they would like to hire once bonuses hit," said one head hunter.