The yen gained on Wednesday following a rally in Japan’s equities and bets on extra fiscally accountable insurance policies after Prime Minister Takaichi’s election win.
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Japan’s largest banks posted document annual earnings of their newest monetary outcomes, however earnings progress might gradual as credit score prices rise and geopolitical dangers cloud the outlook, analysts say.
Mitsubishi UFJ Monetary Group, the nation’s largest lender, stated web revenue rose 30% from a yr in the past to 2.4 trillion yen for the fiscal yr ended March 2026, a document excessive for the third consecutive yr.
Equally, Sumitomo Mitsui Monetary Group and Mizuho Monetary Group additionally reported document annual earnings of their newest earnings, rising 34% and 41% from a yr in the past, respectively.
“Greater yen charges are bettering lending margins and supporting web curiosity revenue, whereas wholesome company funding demand and stronger payment revenue are including to income,” stated Kaori Nishizawa, Director of Banks at Fitch Scores.
Nomura reiterated its bullish stance on Japan’s main banks and named Sumitomo Mitsui and Mizuho as its high picks. The three megabanks — Mitsubishi UFJ, Sumitomo Mitsui and Mizuho — nonetheless “look undervalued relative to the energy of their earnings,” Nomura stated.
Nevertheless, analysts stated the lenders might wrestle to maintain earnings at document ranges.
“Earnings progress is prone to average,” stated Nishizawa, noting that latest upside has come from one-off gadgets, together with market-related features and contributions from acquisitions.
Banks additionally face greater credit score prices, competitors for deposits and strain from broader macroeconomic and geopolitical dangers, in accordance with Nishizawa.
“As such, sustainability of revenue progress at present ranges is prone to be challenged,” she added.
The earnings enhancements seem extra structural than in earlier cycles, pushed by greater home rates of interest, inflation and stronger company funding demand, stated Koichi Niwa, an analyst at UBS.
Stronger wholesale and company finance exercise has benefited giant Japanese banks and helped carry latest earnings amid renewed investor curiosity within the sector, Niwa stated.
However financing mergers and acquisitions, giant company lending, abroad loans and structured transactions usually require extra capital than home lending.
“Consequently, even when earnings are rising, banks additionally have to allocate extra capital to assist balance-sheet growth,” he added.
Lorraine Tan, director of fairness analysis in Asia for Morningstar, expects Mitsubishi UFJ’s earnings progress to gradual to five% from fiscal 2027, as international rates of interest exterior Japan are anticipated to ease.
“This, coupled with slowing contributions from affiliate Morgan Stanley, ought to eat into home progress,” Tan added.
Tan additionally expects Sumitomo Mitsui’s earnings progress to gradual to 9% by fiscal 2028, citing its publicity to a mortgage guide with round 35% exterior Japan, whereas Mizuho’s web curiosity margin features might ease from fiscal 2027 as rates of interest exterior Japan resume an easing cycle.
In the meantime, the Japanese lenders are additionally protecting a detailed eye on developments within the Center East, which might weigh on their earnings outlook.
Junichi Hanzawa, MUFG’s chief government, stated at a latest earnings briefing that the financial institution’s backside line could possibly be negatively impacted if Center East tensions proceed to construct. An extra rise in oil costs earlier than year-end might additionally weigh on international financial progress.
“Center East-related dangers, together with potential spillover results, are partly provisioned for and stay carefully monitored,” Sumitomo Mitsui stated in an earnings submitting.
Mizuho additionally stated that it “will repeatedly monitor the exterior setting & its potential impacts, and flexibly revise [its] monetary outlook if essential going ahead.”
