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Japan’s biggest banks are nearing a key valuation level for the primary time in almost a decade as investors bet that the Bank of Japan will raise rates of interest on Friday and speed up its normalisation of monetary policy.
MUFG, the country’s biggest bank by market capitalisation, is trading above its book value — the purpose at which investors value the bank as being price at the least as much because the assets on its balance sheet — in accordance with Goldman Sachs data.
Its closest rival, SMFG, is trading at its book value, while Mizuho, the third-largest lender, is near the identical point after the banks’ share prices hit multiyear highs. Analysts said they believed the degrees could possibly be sustained as rates rise.
“The Japanese megabanks have risen and have broken above a price-to-book ratio of 1 this month on the back of continued expectation for BoJ rate of interest normalisation,” said Makoto Kuroda, an analyst at Goldman in Tokyo. “It’s the primary time this has happened sustainably since before the negative rate of interest policy, so 2015.”
Bank of America analysts forecast in a note that the common 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 a 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.
Nevertheless it had suppressed valuations across Japan’s banking sector. Negative rates of interest hit lenders’ margins domestically by squeezing the gap between what they may charge on loans and what they paid Japanese depositors.
The BoJ began a two-day rate of interest policy meeting on Thursday. Analysts widely expect it to boost rates of interest by 1 / 4 of a percentage point to 0.5 per cent, based on evidence that a risk of deflation has receded and that firms across the board are actually locked in a cycle of raising wages that can help to sustain prices.
The central bank last increased rates of interest in July, pushing the benchmark rate to 0.25 per cent in a move that surprised investors and triggered a brief phase of maximum volatility in currency, equity and bond markets.
Analysts said a rate increase this week had been more clearly signalled.
“The one hurdle for the BoJ raising rates this week was the danger from Trump, but to date we’ve 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 advantages of expansion abroad. MUFG, for instance, makes greater than half of its revenues from its international business.
Against this, 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.
