These banks have profited from increased corporate activity as deflation has reduced in Japan. This year, banks predict increased earnings and record profits yet again, regardless of the global tariffs and the uncertainty caused by the trade war.
One of the world’s most stable economies, Japan, reported a 0.7% annualised shrinkage in its first quarter due to US President Donald Trump’s trade policies. The economy, which was on a slow path to recovery, has slid down an already slippery slope thanks to Trump’s protectionist policies, which are wreaking havoc on the international system.
On a quarter-to-quarter basis, the economy constricted by 0.2%, compared to the forecasts, which had predicted a 0.1% decline. The GDP contraction, however, was much larger than the median market forecast for a 0.2% drop.
Despite these economic challenges and unfavourable numbers, Japan’s megabanks have performed well, with three of the largest banking groups reporting a record annual net profit for the last financial year. These banks have profited from increased corporate activity as deflation reduced country-wide. This year, banks predict increased earnings and record profits yet again, regardless of the global tariffs and the uncertainty caused by the trade war.
Reuters reported that Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG) and Mizuho Financial Group announced net profits of 1.86 trillion yen, 1.18 trillion yen and 885 billion yen, respectively, in the financial year which ended in March 2025. The banking groups said that they were prepared and had already accounted for the impact of the US tariffs in their forecasts.
Japan’s largest lender, MUFG, has highlighted a global economic slowdown, continued market volatility, and the US dollar on a downtrend as risk factors, but has still forecast a record profit of 2 trillion yen this financial year. Similarly, SMFG and Mizuho Group have projected net profits of 1.3 trillion yen and 940 billion yen, including downward adjustments of 100 billion yen and 110 billion yen, respectively, in the event of prolonged uncertainty.
SMFG is the country’s second-largest banking group and has generated a net income of 42 billion yen in the January-March quarter. This marks a 75% decline compared to the 2024 net income, which was 170 billion yen in the same period. Despite this massive drop, the group still predicts over a trillion yen in profits for the current financial year. The Bank of Japan ending its negative interest rate policy in March 2024 also helped the bank, as it raised profit margins.
According to SMFG Chief Executive Toru Nakashima, although uncertainty looms over tariffs, corporate activities like mergers and acquisitions and capital raising will continue, along with increased wages and investments, which are conducive to banking business activities. Last week, the group announced a 20% acquisition of Indian private lender Yes Bank, indicating the trend of overseas acquisition by Japanese financial institutions, to seek growth at the international level, as the domestic economy shrinks.
Mizuho’s Chief Executive Masahiro Kihara also detailed that the group’s lineup of equity capital markets and mergers and acquisitions deals is currently on hold, as making large-scale investment decisions in these economically tumultuous times is risky and challenging.
The banking groups expect Japanese companies to keep up their investment flows, and each of these groups has flourishing overseas operations in a range of financial services like retail and investment banking, asset management and wealth management. MUFG has owned a 24% stake in the US bank Morgan Stanley since 2008, and Chief Executive Hironori Kamezawa said that as the group has established its presence across Asia and the Americas, it can help withstand any business environment.
Japan’s banks have been some of the biggest beneficiaries of the end of deflation in the country, and this has, in turn, encouraged Tokyo-based companies to borrow more from these banks to make investments domestically and abroad and pursue major M&As. While there is fear of a major recessionary period later in the year, Japan’s mega banking groups are confident in their preparedness to withstand such economic shocks, in the short and long term.
