TOKYO: Profits at Japan’s top banks were hurt by negative interest rates and a stronger yen in the fiscal first half, highlighting challenges in the banking industry. Japan’s biggest lender, Mitsubishi UFJ Financial Group Inc. or MUFG, reported net income of ¥490.5 billion ($4.5 billion) for the April-September period, down 18% from a year earlier as the Bank of Japan’s negative interest rates policy started squeezing bank profits. Of that, ¥30.5 billion came from the bank’s investment in Morgan Stanley, ¥31 billion from U.S. operations including Union Bank and ¥24 billion from Bank of Ayudhya in Thailand. The stronger yen was also a downside factor because it decreased the yen value of dollars earned overseas. MUFG, which gets about 40% of its profit from outside Japan, said a stronger yen generated a negative impact of ¥65 billion.
The Bank of Japan early this year started charging interest instead of paying it on certain deposits held by commercial banks. This negative-rate policy brought down interest rates across the board, squeezing banks’ margins because they have to reduce rates charged to corporate borrowers but have a hard time lowering rates on depositors’ accounts below zero.
Nobuyuki Hirano, MUFG’s president, said at a news conference that ultralow interest rates also weighed on retail investors’ sentiment, leading to weak performance in sales of financial products. “We’ll likely continue to see negative interest rates as a downside factor in the second half,” Mr. Hirano said. Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. also saw slight drops in net income—6.7% and 7.5%, respectively. Mizuho’s net income came to ¥358 billion for the April-September period, while SMFG posted ¥359 billion in net income. Top executives at the banks said they weren’t sure yet how Donald Trump’s presidential victory would affect their business. Shares of Japanese banks initially fell after Mr. Trump’s win but then surged thanks to expectations for pro-growth policies and a lighter regulatory burden in the Trump administration.
Mizuho’s president, Yasuhiro Sato, said the surge in financial stocks might not last. “If something goes in the wrong direction, the market could react negatively,” he said. But he added that if loan demand increases in the new administration, that would be a big business opportunity for his bank. SMFG’s president, Koichi Miyata, said the recent market volatility may create opportunities for trading but he wasn’t sure how the election would change lending.
