Japan's Megabanks Raise Profit Forecasts as Deflation Eases

Positive things are happening in the Japanese economy. The country’s biggest banks have lifted annual profit forecasts and expanded share buyback programmes after strong second-quarter earnings.

The big three “megabanks” have cashed in on a rise in interest rates and a wave of corporate activity fuelled by the end of deflation.

But chief executives of the three “megabanks” have warned that risks remain from continued tariff uncertainty, the impact on consumer sentiment of an unanticipated jump in US inflation and the prospect of an artificial intelligence bubble.

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Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group posted increases in net profit for July-September of 7%, 57% and 47% respectively.

Japan’s largest lender, MUFG raised its profit forecast to 2.1 trillion yen ($13.93 billion) for the financial year ended March 2026, while the second largest SMFG increased its forecast to 1.5 trillion yen, and number-three-player Mizuho lifted its forecast to 1.13 trillion yen.

Corporate mergers, acquisitions, lending

The results also demonstrated the banks’ success in weathering uncertain global economic conditions following US President Donald Trump’s announcement of wide-ranging import tariffs in April.

As tariff-induced uncertainty waned, large Japanese firms, which make up the bulk of the banks’ corporate clients, continued mergers, acquisitions and capital spending, supporting loan demand.

MUFG’s loan balance for large domestic corporations rose to 26.8 trillion yen at the end of September from 25.6 trillion a year earlier, while SMFG’s grew 22% over the same period to reach 26.6 trillion yen.

Japan’s return to positive interest rates has also begun to feed into the banks’ profits.

Mizuho’s domestic loan and deposit rate margin over the six months to the end of September rose to 1.07% from 0.92% in the 2024 financial year and 0.76% in the year before that.

“I expect these favourable conditions to continue. Our clients have many M&A deals in the pipeline and the risk of a global economic slowdown has decreased since the spring,” SMFG’s chief executive Toru Nakashima told a press conference in Tokyo.

“But there are still risks. For instance, if US inflation rises more than expected, what will happen in the private credit market, and talk of an AI bubble, we have to look at these with great care,” Nakashima added.

Share buybacks

MUFG announced a 250 billion yen share buyback, bringing its total for this financial year to a record 500 billion yen.

Mizuho announced one of 200 billion yen, bringing its annual total to 300 billion yen, while SMFG announced 150 billion yen.

During years of rock-bottom interest rates, Japan’s banks looked to expand beyond domestic lending, such as internationally or in areas such as wealth management.

MUFG owns about 24% of Morgan Stanley, which contributes over a quarter of its net income, while non-interest income in Mizuho’s global corporate and investment banking unit grew nearly 20% year-on-year in the six months to end-September.

“Since the negative interest rates period, we have massively increased our revenue streams, including abroad,” Mizuho’s chief executive Masahiro Kihara said.

All three of the banks reported record profits in the year ended March 2025 and Friday’s forecasts exceeded previous estimates, which themselves prefigured records.

MUFG reported quarterly profit of 747 billion yen, SMFG booked 557 billion yen, and Mizuho booked 399 billion yen.