Japan’s biggest banks tumbled in Tokyo share trading yesterday as a drop in their latest earnings was compounded by fears that the Bank of Japan’s (BOJ) new stimulus measures would hurt their bottom lines.
Shares in the trio — Mitsubishi UFJ Financial Group Inc, Sumitomo Mitsui Financial Group Inc and Mizuho Financial Group Inc — suffered a selloff after the central bank on Friday unveiled plans to effectively charge lenders on some deposits.
The negative interest rate policy is intended to increase lending to people and businesses in order to stimulate the world’s third-largest economy and fend off deflation.
The idea is to give commercial banks an incentive not to park their cash at the central bank.
However, the move threatens to weigh on bank profits, as they battle to drive up lending at home, analysts said.
Some analysts saw the BOJ bid as a desperate move after three years of Japanese Prime Minister Shinzo Abe’s big spending and monetary easing policy known as “Abenomics,” that had a limited impact on the moribund economy.
“While banks potentially benefit along with the rest of the economy from Friday’s valiant attempt by the BOJ to rescue Abenomics, in the short and medium term the sector seems likely to face substantial downward earnings pressure,” Keefe, Bruyette & Woods analyst David Threadgold said in a commentary, adding that the banking unit of Japan Post is most at risk owing to the size of its domestic business.
After markets closed yesterday, Mitsubishi UFJ said its net profit for the nine months through December last year fell 8 percent to ￥852.3 billion (US$7.04 billion), as it saw lower gains on its vast debt holdings.
The bank’s shares tumbled 5.46 percent, while Sumitomo Mitsui dived 7.61 percent and Mizuho Financial Group dropped 5.87 percent.
Last week Sumitomo Mitsui said net profit dropped more than 8 percent, but it added that it would still hit a ￥760 billion net profit for the fiscal year ending next month.
Mizuho’s profit edged down from a year earlier.
“The new policy is unlikely to dispel growing concerns about the efficacy of Abenomics,” US-based political risk firm Teneo Intelligence vice president Tobias Harris said. “It could take significantly negative rates to convince businesses and households to move out of cash into other assets.”
The three-tiered system applies negative interest rates to new reserves parked at the central bank.
“The BOJ may be testing to see what effects a negative rate has on the behavior of lenders, depositors and borrowers before committing fully to a negative interest rate policy,” Harris said.
The bank share selloff might be overdone, Credit Suisse Tokyo-based analyst Takashi Miura said.
“Bank shares are being sold today on concerns of lower margins on loans and securities, as they were on Friday,” Miura told Bloomberg News. “But in reality the megabanks have a high proportion of overseas lending, which will benefit from the weakening yen... I think the market may have gone too far.”
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