Japan’s largest lenders hit valuation landmark as central financial institution weighs price improve | USAEMALL.com

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Japan’s biggest banks are nearing a key valuation level for the first time in almost a decade as investors bet that the Bank of Japan will raise interest rates on Friday and accelerate its normalisation of monetary policy.

MUFG, the country’s biggest bank by market capitalisation, is trading above its book value — the point at which investors value the bank as being worth at least as much as the assets on its balance sheet — according to Goldman Sachs data.

Its closest rival, SMFG, is trading at its book value, while Mizuho, the third-largest lender, is close to the same point after the banks’ share prices hit multiyear highs. Analysts said they believed the levels could be sustained as rates rise.

“The Japanese megabanks have risen and have broken above a price-to-book ratio of one this month on the back of continued expectation for BoJ interest rate normalisation,” said Makoto Kuroda, an analyst at Goldman in Tokyo. “It is the first time this has happened sustainably since before the negative interest rate policy, so 2015.”

Bank of America analysts forecast in a note that the average price-to-book ratio for the three megabanks would “be around 1.1-1.2 times in mid-2025”.

Japan’s negative rate policy, which was ended by the BoJ in early 2024, was part of the central bank’s efforts to take the country out of deflation and restore a virtuous cycle of rising prices and rising wages.

But it had suppressed valuations across Japan’s banking sector. Negative interest rates hit lenders’ margins domestically by squeezing the gap between what they could charge on loans and what they paid Japanese depositors.

The BoJ started a two-day interest rate policy meeting on Thursday. Analysts widely expect it to raise interest rates by a quarter of a percentage point to 0.5 per cent, based on evidence that a risk of deflation has receded and that companies across the board are now locked in a cycle of raising wages that will help to sustain prices. 

The central bank last increased interest rates in July, pushing the benchmark rate to 0.25 per cent in a move that surprised investors and triggered a short phase of extreme volatility in currency, equity and bond markets.

Analysts said a rate increase this week had been more clearly signalled.

“The only hurdle for the BoJ raising rates this week was the risk from Trump, but so far we have not heard anything from him on Japan and the market has been very stable. Nothing can prevent the BoJ moving this week,” said Masamichi Adachi, chief Japan economist at UBS.

Japan’s banks are also reaping the benefits of expansion abroad. MUFG, for example, makes more than half of its revenues from its international business.

By contrast, Japan’s many smaller, regional lenders are still trading at market valuations of between 0.3 and 0.8 times their book value, said Goldman’s Kuroda.