The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Una Galani

HONG KONG, April 24 (Reuters Breakingviews) - Nomura 8604.T is catching up with Japan’s reflation trade. The country’s emergence from decades of falling prices is exciting global investors. That shift, which started in March 2024 when Japan ended its negative interest rate policy, is at last visible in the valuation of the $26 billion investment bank led by CEO Kentaro Okuda. With momentum gathering, he now has scope to raise the bar.

Despite some impairments and nearly one-third decline in income before taxes during the fourth quarter at Nomura’s wholesale division, which houses the firm’s investment bank and trading arms, its decent run of earnings is broadly continuing. Net profit rose 3% to 73.9 billion yen ($462.8 million) in the three months to the end of March, compared with the same period last year. Overall, the firm delivered an 8% return on equity for the quarter and a 10.1% return on equity for the full year, handily beating the upper end of its 8% to 10% target.

Nomura’s efforts to generate sustainable earnings, supported by recurring revenue and reduced exposure to market swings, are working: the upshot is Nomura’s market value finally reflects estimates of its one-year forward book value. The last time it consistently traded at or above par was a decade ago. That has helped close the valuation gap with Japan's megabanks, despite Nomura being less exposed to the benefits of rising interest rates than Sumitomo Mitsui 8316.T, Mitsubishi UFJ 8306.T and Mizuho 8411.T.

This suggests investors are starting to worry less about Nomura slipping up on yet another banana skin. Its last serious stumble occurred during the collapse of Archegos Capital in 2021, which cost Nomura $2.9 billion. Earlier it was its 2008 purchase of Lehman’s non-U.S. assets. Much scepticism remains about the merits of the Japanese bank trying to rival bulge bracket Wall Street firms, but at least now Nomura’s international business has been profitable on a pre-tax basis for ten consecutive quarters.

Nomura celebrated its 100th anniversary in December and will begin moving into its new headquarters in Nihonbashi, Tokyo, from September. It’s a good time to show a little more self-confidence. Setting a higher return on equity target at its investor day next month would be a good place to start. It hit the upper end of its goal for two years in a row, and the bank’s growing wealth management business, which booked an impressive 43% net margin in the fourth quarter, should further increase profitability. With more stability, Okuda can take bigger risks.

Follow Una Galani on Linkedin and X.

CONTEXT NEWS

Nomura Holdings, Japan’s biggest brokerage and investment bank, on April 24 reported a net profit of 73.9 billion yen ($462.8 million) for the three months to the end of March, a 3% increase from the same period in the previous year.