Japan's megabanks eye record earnings as BOJ rate hikes boost margins

Their earnings may further rise over the next two years.

Japan’s megabanks are expected to continue setting new earnings records over the next two fiscal years, as the central bank’s monetary policy normalisation boosts margins.

Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG) and Mizuho Financial Group are each expected to report record net income for the fiscal year that ended March 2026, according to S&P Global Market Intelligence.

Their earnings may rise further over the next two years, it said, based on forecasts from Visible Alpha.

The Bank of Japan (BOJ) is expected to raise its policy rate in June after keeping it steady in April. The central bank earlier hiked its rate by 25 basis points (bp) in December, its fourth since exiting negative interest rates in March 2024.

However, the three megabanks may face credit risk as the outlook for the Middle East war remains uncertain.

Japanese banks are expected to continue seeking higher-yielding offshore assets, including US private credit, an early report by Fitch Ratings said. Whilst these do not pose a systemic threat to major financial institutions (FIs) at the moment, risk can accumulate through indirect channels. 

Whilst the three megabanks’ profits are set to rise, their capital will remain a weakness, Fitch said in a November 2025 report.

Overseas expansion, especially to higher-risk markets, could raise the banks’ credit costs and pressure their capital, Fitch warned.