Japanese banks face bond yield shocks as yields hit 2.23%

Megabanks should be able to handle the near-term losses, said Fitch.

Japanese megabanks should be able to handle near-term losses from Japanese government bonds (JGBs), whilst weaker regional banks and smaller securities firms are most vulnerable.

Benchmark 10-year JGB yields rose about 100bp to 2.23% in January 2026 from a year earlier, leading banks and securities firms to recognise mark-to-market losses on domestic bond holdings, said Fitch Ratings in a report on 12 February 2026.

“Mega banks should cope better because their bond portfolios are generally shorter-dated and they have sizable cash positions that can be deployed into discounted assets and reinvested at higher yields,” the ratings agency said.

Megabanks’ large retail deposit bases will support banks’ improving sector outlook for 2026, with net interest margins recovering towards levels before the negative interest rate policy.

Fitch had earlier assessed Japanese megabanks’ profitability to improve in 2026, although earnings and capitalisation will remain their weaknesses.

Continuing loan demand from corporates is also helping Japanese banks further restore their profitability, Kensuke Sugihara, primary credit analyst for S&P, wrote in the November 2025 outlook.