Japanese banks' loan growth expected to slow in 2017

Blame it on the rising costs of foreign-currency funding.

Fitch Ratings' negative sector and rating outlooks for Japanese "mega" banks reflect its expectation that the operating environment for the Japanese banks will continue to be challenging - with GDP growth below 1%, a low inflation rate despite the introduction of a negative policy interest rate in 2016, and volatile stock and foreign-exchange markets reflecting global uncertainties.

Here's more from Fitch:

Fitch expects the banking sector's profitability will continue to be pressured, although the mega banks are in a better position than other domestically focused banks - given their more diversified sources of revenue. Asset quality will remain manageable, although with a slight increase in credit costs.

Fitch believes that capital positions will remain intact with reduced vulnerability to market volatilities as they continue to trim their investment exposure, although with slower growth due to pressure on profitability.

We expect the banks' overseas loan growth to slow with the rising costs of foreign-currency funding, some deceleration of economic activity abroad, and with more stringent regulatory capital standards. They are likely to invest more selectively overseas. The banks face greater foreign-currency liquidity management needs, although their overall liquidity position remains strong.