Japan megabanks post record quarterly profits as central bank rate reaches one percent
The Bank of Japan's decision to raise its policy rate to one percent has driven the country's largest lenders to record first-quarter profits, fundamentally restructuring an industry long crippled by cheap money.
Japan's five largest banking groups generated a combined net profit of JPY1.956 trillion ($12.3bn) in the April-June quarter, representing a 42.3% year-on-year increase. Four of the five institutions reported record first-quarter earnings on August 3, with Mitsubishi UFJ Financial Group alone posting JPY809.4bn, a 48.2% jump.
These results reflect the direct impact of the Bank of Japan's monetary tightening, which pushed the policy rate to 1% on June 16, its highest level since 1995. The central bank maintained this rate on July 31 while warning that core inflation could remain above its 2% target, securing wider net interest margins for the sector.
At Sumitomo Mitsui, the average domestic loan yield rose 32 basis points to 1.34% over the past year, while deposit costs remained largely flat. Mizuho saw its loan-and-deposit margin expand from 0.92% to 1.10%. Looking ahead, S&P Global forecast in June that “profit will continue increasing for Japan's three major banking groups through fiscal 2026”.
For the full year ending March 2026, the three megabanks booked a combined JPY5.26 trillion, a 34% increase and a second consecutive record, with Mizuho clearing JPY1 trillion for the first time. Despite this surge, return on equity at the megabanks remains between 10% and 11%, trailing the 15% or more routinely delivered by major US lenders.
Decades of domestic stagnation and a shrinking population have forced these institutions to seek growth internationally. This global reach was evident in March when the three megabanks joined US lenders to arrange a $40bn bridge loan for SoftBank's investment in OpenAI.
However, rising rates have also inflicted severe mark-to-market losses on bond portfolios, particularly at the JPY60 trillion Norinchukin Bank. After dumping roughly JPY10 trillion of foreign sovereign debt, the cooperative reported a JPY1.8 trillion net loss for the year to March 2025, though it returned to a JPY58bn profit in the April-June quarter with JPY1.22 trillion in unrealised losses remaining.
This exposure highlights a broader vulnerability, as Japan holds approximately $1.2 trillion of US Treasuries and its financial institutions have heavily chased foreign yields. Meanwhile, regional banks serving depopulating areas are pursuing consolidation to survive, with SBI Shinsei Bank coordinating syndicated loans with over 20 smaller lenders.
