For decades, Japanese banks were stuck in a slump. Bad loans and rock-bottom interest rates kept them from growing. Now a bank has risen to the top of Japan's stock market for the first time since the country's three major banking groups were created. Mitsubishi UFJ Financial Group (MUFG) became Japan's most valuable company by market value.
The reason is a major shift in Japan's monetary policy. In March 2024, Japan's central bank stopped its policy of charging negative rates, which allowed financial institutions to earn more on loans. After that, the BOJ raised rates four more times.
Higher rates are a big boost for banks. When the central bank raises rates, lenders can charge more for loans while keeping deposit rates relatively low, and the difference - their net interest margin - widens. The result: MUFG's share price hit a record ¥3,541, up 2.3% on that day.
Another major company, Kioxia Holdings Corp, had a market value of ¥36.7 trillion. Even Sumitomo Mitsui Financial Group, another megabank, saw its stock rise 1.6% to its own all-time high.
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This is a sharp turnaround. After Japan's asset-price bubble burst in the early 1990s, banks ended up holding huge quantities of nonperforming loans. The BOJ then kept interest rates very low for decades to battle deflation, making it difficult for banks to lift lending rates.
The persistent low-rate environment forced lenders to find other ways to generate income, such as expanding abroad and offering fee-based services. MUFG, for instance, built a strong footprint in Southeast Asia and the United States, positioning itself to benefit from global growth.
Now, rate hikes have bolstered bank profits. MUFG is the biggest winner so far.
The rise of MUFG reflects a deeper transformation in Japan's banking industry. For most of the 2000s and 2010s, the three megabanks - MUFG, Sumitomo Mitsui, and Mizuho - struggled with shrinking margins as the BOJ kept rates near zero or negative. Their stock prices languished, and they were often overshadowed by export giants like Toyota and Sony.
Now, with inflation finally taking hold and the central bank normalizing policy, lenders are once again seen as growth stories. MUFG itself has been expanding overseas, particularly in Asia and the Americas, to diversify its income beyond domestic lending. Its recent all-time high signals that investors believe the rate cycle has further to run - and that Japanese banks can sustain their newfound profitability.
This shift in monetary policy has also benefited other financial institutions. Sumitomo Mitsui Financial Group and Mizuho Financial Group have both seen their stock prices rise significantly. Mizuho, for instance, recently reported a jump in net interest income due to higher lending rates. However, MUFG's larger presence in rate-sensitive segments gave it an edge, helping it surpass even the world's largest automaker.
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