Japan ABS Market Outlook

japan’s abs market has seen impressive performance in recent years with a robust and diversified pipeline of transactions from a wide range of asset classes, including structured finance, auto loans, trade receivables and consumer finance. this positive outlook has been driven by the liberalization of japan’s banking system and increased regulatory support for securitization. the bank of japan (boj) adoption of a negative interest rate policy in january 2016 has had an impact on the abs market, with issuer's benefiting from access to cheap funding sources and investors benefitting from higher yields on abs investments. this has led to a surge in presses, with volumes reaching record highs in 2017, up 30% year-on-year. going forward, the key driver of abs activity in japan is expected to be the development of consumer finance abs. this sector has seen tremendous growth in recent years, with issuance volumes increasing from just jpy 242 billion in 2016 to jpy 745 billion in 2017. it is projected that consumer finance abs will account for around 20% of all abs issuance by 2032. a further boost to the abs market can be expected from the adoption of the new asset-backed security financial instrument act, which was enacted in july 2017 and came into effect in october 2017. this will facilitate the development of new asset classes, strengthen investor protection and allow for greater innovations in abs structures. other areas to watch out for in the near term are the development of green finance abs, the emergence of new digital technologies, and the potential adoption of covered bond legislation. overall, the outlook for the japanese abs market remains positive, with further growth expected over the next 15 years. issuers will benefit from an increasingly favourable regulatory system, strong demand for consumer finance assets and improved secondary market liquidity. investors can look forward to greater access to high-yielding assets, and improved transparency and risk management.