In the late 1990s, when Merrill Lynch bought the rump of Yamaichi, it looked to be the one foreign investment bank to have cracked the Japanese market. If, back then, you had suggested that one day Merrill would be running its Tokyo equities business from Hong Kong, there would have been people all around you reaching for strait jackets and sedatives.

Not today, since Merrill has now taken the decision to run all Asian equities from Hong Kong, including Japan and Australia. The new head of the Pacific Rim equities business will be Hong Kong-based, Simon Brookhouse. Former Japanese equities boss, Junichi Nagaya will take a sabbatical while Japanese research head, Kiyoshisha Ota will retire. Hong Kong research head, Hunsoo Kim and Keith Donaldson will become joint heads of Pacific Rim research.

Merrill Lynch currently has 100 people working in Japanese equities (excluding research) who will now report into Brookhouse, who previously ran non-Japan Asia and Australia equities (which has 250 staff).

Brookhouse says he will be travelling to Tokyo on a fairly regular basis and will look for situations where there are similarities between Japan and the rest of Asia to create efficiencies in coverage. He cites the example of Japanese electronics companies and how many fund management clients now directly compare them with Korean and Taiwanese competitors.

"This move is not just about cost-cutting per se," he says, "but is also about extracting greater value from what we have. We want to be as profitable and efficient as possible. I hope we can make the business more effective."

Looked at another way, it is a further blow to Japanese pride that a firm of Merrill's stature should resort to running its Japanese equities operation from somewhere else. Japan has always taken the view that while geographically in Asia, it is a special anomaly within the region that demands to be run as a separate business, preferably with a person of Japanese descent in charge. The idea of being run from Hong Kong - a place many Japanese still associate with plastic flowers - does not fit with this philosophy.

Then again, given Japan's sheer economic size relative to the rest of Asia, Brookhouse will certainly have his work cut out running the new Pacific Rim region; and whether this is the first move in a scaleback from Japanese equities will be what rivals will be watching.