Despite the thriving markets in Japan, international bankers in Tokyo are grappling with a significant issue: their pay remains stubbornly low. This situation persists even as the workload for these bankers has seen a substantial increase.
According to insights from over a dozen senior bankers and recruiters in Tokyo's Marunouchi and Roppongi business districts, compensation in the financial sector often falls short compared to other global financial hubs. For instance, bonuses at international investment banks in Tokyo saw an average decline of about 10% in 2023. This decrease is largely attributed to the banks' performance outside of Japan.
In Japan, where top executives traditionally receive lower salaries than their counterparts in the US and Europe, traders and investment bankers are expected to accept lesser compensation. This expectation is partly due to the country's strict labor laws, which make it more challenging to terminate employees.
Despite the thriving sectors of mergers and acquisitions (M&A), real estate, and private equity, the financial rewards for employees have not seen a significant uptick. "The M&A space is great, real estate space is great, private equity space is great," commented Jack Brennan, head of financial sector recruiting at Hays Japan in Tokyo, highlighting the lack of substantial benefits for employees in these booming sectors.
Even as revenue from Japan's fixed-income trading at Wall Street and European firms surged by more than a third to $2.6 billion in 2023, this did not translate to increased compensation for employees. For example, a fixed-income trader at an international bank earned just under 100 million yen ($665,000), which is about 1% of the income they generated for their employer.
The optimism surrounding Japan’s economic outlook, bolstered by figures like Warren Buffett (Trades, Portfolio) and BlackRock Inc. CEO Larry Fink, contrasts with the reality of stagnant wages in the financial sector. Despite the Bank of Japan raising rates for the first time in 17 years and a 55% increase in M&A transactions linked to the country, the financial benefits for bankers remain limited.
Comparatively, average Wall Street bonuses in New York experienced a slight decrease last year, with the ongoing deal slump keeping compensation levels in check. This trend underscores a broader issue within Japan's financial sector, where stagnant transaction volumes have led to a decade of underpayment for bankers, potentially hindering Tokyo's ambition to become a global financial hub.
Efforts by Prime Minister Fumio Kishida to revitalize Japan's asset management industry and attract financial firms through deregulation have yet to result in higher pay for financial professionals. The Nikkei 225 index hitting a record earlier this year fueled hopes for increased compensation, yet there's no significant movement in hiring more equity sales staff and traders for Japanese stocks.
One area where pay has seen growth is among rates traders dealing in government bonds and securities linked to interest rates, with top performers doubling their compensation in 2023. However, the conservative financial culture in Japan, influenced by an aging society, poses challenges to transforming Tokyo into a leading financial center.
As financial professionals continue to favor cities like Hong Kong and Singapore over Tokyo, despite the former's challenges, Japan faces an uphill battle in attracting and retaining talent in its financial sector. The disparity in compensation undermines Japan's other benefits and often leads to disappointment among potential candidates considering a move to Tokyo.
