Banking industry in Japan - statistics & facts
Banks in Japan are finding themselves in new territory. After decades of ultralow interest rates, the Bank of Japan raised its key policy rate for the first time in 17 years in March 2024. A second hike took place in August 2024. Japanese banks now operate in an environment with positive policy rates for the first time in eight years.
Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group are Japan’s largest banking groups. Along with Japan Post Bank, the three megabanks are among the major players globally in terms of total assets. City banks, which include the core banking units of the megabank groups, operate nationwide and on a global scale, while regional banks typically focus on a single region and provide banking services to local residents and small and medium-sized businesses. There are also numerous cooperative financial institutions, such as shinkin banks, agricultural cooperatives, and credit unions, which provide banking services.
In March 2024, the Bank of Japan announced the first central bank policy rate hike in 17 years, moving the rate to positive territory for the first time since 2016. The changed environment is expected to improve banks’ profitability through increased interest income. But it also is associated with risks related to valuation losses on assets. In addition, increases in lending rates could hit borrowers and threaten their ability to repay loans.
For Japan’s banks, an era of ultralow interest rates ended in March 2024. After a second rate hike was announced in August 2024, some banks decided to adjust their short-term prime lending rates. Since the short-term prime lending rate serves as a benchmark for adjustable home loan rates, this could also affect Japan’s housing market.
Key players in Japan’s banking industry
There is a large number of different players in Japan’s banking landscape. Commercial banks are supervised by Japan’s primary financial regulator, the Financial Services Agency (FSA) and informally categorized according to their function and historical origin.Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group are Japan’s largest banking groups. Along with Japan Post Bank, the three megabanks are among the major players globally in terms of total assets. City banks, which include the core banking units of the megabank groups, operate nationwide and on a global scale, while regional banks typically focus on a single region and provide banking services to local residents and small and medium-sized businesses. There are also numerous cooperative financial institutions, such as shinkin banks, agricultural cooperatives, and credit unions, which provide banking services.
End to negative interest rates: new territory for the Japanese banking sector
For almost two decades, Japanese banks have operated in an ultralow interest rate environment and struggled with low profitability, forcing them to cut cost and seek business opportunities in overseas markets. Regional banks, of which there are over 100, have been particularly affected by Japan’s demographic change and declining economic activity in rural areas.In March 2024, the Bank of Japan announced the first central bank policy rate hike in 17 years, moving the rate to positive territory for the first time since 2016. The changed environment is expected to improve banks’ profitability through increased interest income. But it also is associated with risks related to valuation losses on assets. In addition, increases in lending rates could hit borrowers and threaten their ability to repay loans.
For Japan’s banks, an era of ultralow interest rates ended in March 2024. After a second rate hike was announced in August 2024, some banks decided to adjust their short-term prime lending rates. Since the short-term prime lending rate serves as a benchmark for adjustable home loan rates, this could also affect Japan’s housing market.
