Japan’s Banks Enter a New Era of Opportunity

Mia Nagasaka · Morgan Stanley MUFG Securities

Japanese banks gain from a multistage financing cycle: loans first, then bond underwriting and M&A advisory fees.

Financing needs extend beyond loans. She forecasts Japan's corporate bond market growing from about 52 trillion to 63 trillion yen and the M&A market rising from 23 trillion to 32 trillion yen by March 2031. Large projects need several forms of financing, so lending opens the door to underwriting and advisory fees. Early on banks benefit from lending and project finance, with fee businesses contributing more as projects mature, making it a multistage financing cycle rather than a short-lived lending boom.

“Large projects often need several forms of financing, so lending can open the door to underwriting and advisory fees as well... This makes the opportunity look less like a short lived lending boom and more like a multistage financing cycle.”at 2:31

Mia Nagasaka · Morgan Stanley MUFG Securities

Japan's megabank ROEs, currently 10-11%, could reach around 15% over the medium term.

Megabank ROEs are currently roughly 10-11%, and she sees a path to around 15% over the medium term. Structural growth and corporate financing demand alone could add about 1-1.5 percentage points. The shift from excess savings and underinvestment to companies needing capital gives banks more productive ways to deploy their balance sheets, making this more than a rate-driven story.

“Japan's megabanks are currently generating ROEs of roughly 10 to 11%. We see a path toward around 15% over the medium term. Structural growth and corporate financing demand alone could add about one to 1.5 percentage points.”at 3:11

Mia Nagasaka · Morgan Stanley MUFG Securities

Japan is entering its first meaningful capex cycle in nearly three decades, as firms need capital to grow.

After decades in which Japanese companies held more cash than investment opportunities, investment needs are broadening, from labor-saving technology to replacement of aging equipment, and companies are reallocating capital toward higher-return businesses. She calls this the first meaningful capex cycle in nearly three decades and a shift from an economy of excess savings and underinvestment to one where companies need capital to grow, though she conditions this on the transition continuing.

“We think Japan is entering its first meaningful CapEx cycle in nearly three decades. Investment needs are broadening, from labor saving technology to the replacement of aging equipment.”at 0:56