Japan's megabanks expect slower earnings growth amid tariff uncertainties

Japan's three megabanks expects slower earnings growth in the fiscal year that started April 1, as US President Donald Trump's tariff policy creates uncertainties for their business outlook.

Mitsubishi UFJ Financial Group Inc. (MUFG), Sumitomo Mitsui Financial Group Inc. (SMFG) and Mizuho Financial Group Inc. forecast aggregate net income for the March-to-April period to grow by 7.9% to ¥4.240 trillion, as they increased combined loan loss provisions to ¥790 billion from ¥504 billion in the previous fiscal year to prepare for potential credit risks.

For the year ended March 31, 2025, the megabanks' aggregate net income rose by 25.3% to ¥3.926 trillion.

"The tariff policy significantly deepens the uncertainty of our business outlook," SMFG CEO Toru Nakashima said during an earnings press conference on May 14. "The impact of the US trade policy won't be negligible for us and is already emerging."

The Trump administration's imposition of additional 25% tariffs on steel and aluminum products and automobiles and a uniform 10% tariff on Japan and other trade partners could sap demand for cash as companies may pause capital spending and mergers and acquisitions.

The Bank of Japan downgraded its forecast for Japan's real gross domestic product (GDP) to 0.5% growth in the current fiscal year on May 1, from the 1.1% expansion predicted in January.

If the tariffs spur inflation in the US, the Federal Reserve will be in a weak position to cut rates further, impacting corporate activity and hindering the three Japanese banks from lending or acting as investment bankers in the world's largest economy.

Slower earnings growth

MUFG, Japan's biggest lender by assets, set a record-high net income target of ¥2 trillion for the current fiscal year. However, that represents a 7.3% increase from the ¥1.863 trillion earned in the previous fiscal year, which had a 25% jump. The megabank raised its loan loss provision to ¥350 billion in the current fiscal year from ¥108.7 billion in the previous year.

"The Japanese economy may slow down for the second half of the year," due to pressure from the unpredictable US trade policy, MUFG CEO Hironori Kamezawa said at a press conference on May 15. "That could make it harder [for the Bank of Japan] to raise interest rates." MUFG's earnings plan is based on the current interest rates of 0.5%.

Mizuho expects its net income to grow 6.1% to ￥940 billion in the current fiscal year. The megabank reported a 30.4% increase in net income to ￥885.4 billion in the previous fiscal year. Its credit costs nearly tripled to ￥140 billion from ￥51.6 billion.

"We made a conservative plan, based on the unpredictability [of the US trade policy]," Mizuho CEO Masahiro Kihara said at a press conference on May 15.

Similarly, SMFG estimates that its net income will grow 10.3% to ¥1.3 trillion in the current fiscal year, considering a negative impact of ￥100 billion from "changes in the business environment." In the most recent fiscal year, the bank's net income rose 22.3% to ¥1.178 trillion.

SMFG's Nakashima expressed concern that the Japanese yen's appreciation against the dollar, potentially resulting from Trump's policy, will harm his bank.

The yen's strength could diminish the value of profits earned overseas when converted into the home currency for the megabanks with significant overseas exposure. The three megabanks' earnings plans for the current fiscal year are based on 140 yen per US dollar.

SMFG set loan loss provision at ￥300 billion for the 12 months, down from the ¥344.5 billion booked in the previous fiscal year. The bank added ¥90 billion of forward-looking credit costs in the fourth quarter of the previous fiscal year, which raised provisions to ¥344.5 billion from the initially estimated ¥260 billion.