Japan’s megabanks may increase foreign bond purchases to meet income goals

Upcoming US Fed rate cuts may raise bond prices, increasing urgency to buy.

Japan’s three megabanks are likely to increase their foreign bond purchases and scale back on local government bonds, according to a report by S&P Global Market Intelligence.

Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group have increased their holdings of foreign bonds, including US Treasury, over the past several years, in a shift away from yen bonds with rising yields, according to data from the megabanks.

S&P Market Intelligence expects this move to support the banks' earnings and could help achieve income targets in the current fiscal year ending 31 March 2026.

"Putting money into Japanese government bonds would be riskier as interest rates in Japan are moving up," said Hideo Oshima, a senior economist at the Japan Research Institute, speaking to S&P Market Intelligence.

The US Federal Reserve is expected to resume rate cuts, with the first likely in September, based on assumptions of economists. They expect the US central bank to cut rates two times in 2025, increasing the urgency for Japanese banks to buy US Treasurys as prices may rise.

The Fed maintained its policy rate between 4.25% to 4.5% at its July policy meeting after its last cut in December 2024.