Japanese banks build hidden risk in offshore credit push

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Japanese financial institutions’ (FIs) continued interest in higher-yielding offshore assets—including alternative credit products—is not expected to pose a systemic threat to major institutions, but risk could accumulate, said Fitch Ratings.

Japan’s FIs are expected to continue seeking these assets, which include US private credit. These do not pose a systemic threat to major FIs.

“However, risk could accumulate through indirect channels across financial groups and become correlated in a stress scenario,” the ratings agency said in a commentary in late April 2026

“Where exposure exists, it is more likely to arise through indirect channels, such as fund finance, warehouse lending, leveraged finance and collateralised loan obligations, rather than through direct-lending books, reflecting investor preferences and market structure,” it added.

Currently, direct exposure to US private credit appears limited at Japan’s major institutions, Fitch said.

Japanese authorities have reportedly begun to scrutinise private-credit exposure, though they have not flagged it as a domestic financial concern.

“The Financial Services Agency has been monitoring private-credit exposure at major financial institutions, while Japan’s finance minister has said the country’s exposure is not particularly large or a major risk. This is consistent with our view that private credit has a limited footprint in Japan,” Fitch Ratings said.