The Japanese yen strengthened on Wednesday amid an uptick in the country’s equities and increased expectations for more fiscally responsible government policies following Prime Minister Takaichi’s election victory. Major Japanese banks reported record annual profits, with Mitsubishi UFJ Financial Group, the largest lender, announcing a 30% increase in net profit to 2.4 trillion yen for the fiscal year ending March 2026—marking three consecutive years of record profits. Similarly, Sumitomo Mitsui Financial Group and Mizuho Financial Group reported net profit increases of 34% and 41%, respectively.
Analysts attribute these gains to rising yen rates that enhance lending margins, alongside robust corporate funding demand and increased fee income. Nomura remains optimistic about Japan’s major banks, particularly favoring Sumitomo Mitsui and Mizuho due to their perceived undervaluation relative to their earnings strength. However, experts warn that sustained profit growth might be challenging. Rising credit costs, competitive pressures for deposits, and geopolitical uncertainties could hamper earnings, according to Kaori Nishizawa of Fitch Ratings.
UBS analyst Koichi Niwa noted that the recent profit growth is more structural, driven by domestic interest rates and inflation. Nevertheless, increased capital requirements for financing corporate lending and mergers may limit balance-sheet expansion capabilities. Expectations indicate that Mitsubishi UFJ’s earnings growth may decelerate to 5% starting in fiscal 2027, and Sumitomo Mitsui’s growth is projected to slow to 9% through fiscal 2028, impacted by global interest rate trends and foreign market exposure.
Japanese banks are also vigilant regarding developments in the Middle East, which could further complicate their earnings outlook, particularly in light of potential oil price increases that threaten global economic stability.
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