Shinzo Abe's expansionary economic policies may be aimed at bolstering Japan's global manufacturing groups, but the country's biggest banks are suffering an Abenomics ordeal.
The three biggest Japanese lenders – Mitsubishi UFJ, Mizuho and Sumitomo Mitsui – on Wednesday forecast lower profits for the financial year to next March, as the aggressive monetary easing promoted by the prime minister and his central bank governor, Haruhiko Kuroda, pushes them out of the relatively lucrative government bond (JGB) market.
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Banks have for years counted on income from JGB trading to supplement the poorly paid business of lending to companies. Japan's corporate sector is flush with cash and – given the country's weak growth – has little need for new factories or equipment in any case. When companies do turn to banks for funds, it is at rates so low as to make the loans barely profitable.
Mr Kuroda in effect took the JGB business away from banks last month. As part of an effort to end Japan's prolonged deflation, the Bank of Japan doubled the amount of bonds it buys each month – mopping up about 70 per cent of new issuance from the government. That has led to a collapse in trading volumes and, in effect, squeezed private financial institutions out of the market.
"In a sense, we are back to cruising speed," said Nobuyuki Hirano, president of Mitsubishi UFJ, Japan's largest bank by assets. "We had a large profit from selling bonds last financial year but we are expecting it to sharply fall this year."