Jefferies picks 3 Japanese banks that could get a boost from a new prime minister, more stimulus

Published Mon, Sep 13 20217:30 PM EDT

Japan is set to get a new prime minister and that could usher in more fiscal stimulus, boosting some of the country's banks, according to Jefferies. Japanese politics was recently thrown into turmoil after Prime Minister Yoshihide Suga bowed out of the governing party's leadership race . As the contest to become Japan's next prime minister heats up, noted contender Fumio Kishida has reportedly called for more fiscal stimulus . "We think that whoever wins, the imminent job of the new PM will be to support Japan's economy as it normalizes and catches up with the other markets, to include more fiscal spending," Jefferies analysts Hideyasu Ban and Hiro Nakakura wrote in a recent note. Ban and Nakakura predicted that this would lead in part to a steeper yield curve bias — meaning a wider spread between long- and short-term interest rates — in Japan, albeit one that's range bound. In particular, they highlighted three Japanese banks: Mitsubishi UFJ Financial Group , Mizuho Financial Group and Sumitomo Mitsui Financial Group . The analysts raised their price target on Mitsubishi UFJ from 700 Japanese yen per share to 750 yen ($6.81). They also raised their price target on Mizuho from 1,680 Japanese yen per share to 1,800 yen (about $16.35). Jefferies has a "buy" rating on Mitsubishi UFJ and a "hold" rating on Mizuho. The analysts identified Sumitomo Mitsui as having the "largest upside potential" among the three. Jefferies currently rates the stock as a "buy" with a price target of 4,900 Japanese yen per share ($44.49). Jefferies gives a "buy" rating to securities it sees giving 15% or more in total return within a 12-month period. A "hold" rating indicates Jefferies expects performance between the range of a 10% loss and 15% gain within a 12-month period. In the near term, Jefferies sees MUFG as the top performer of its bank picks, followed by SMFG and Mizuho. "Our new estimate of banks' ROE over the next three years is lower than their mid-term plan targets, but current valuations suggest that the market is much less optimistic or less confident than we are," Ban and Nakakura said. "As a result, we think the bank stocks are at the level where they can outperform the market when the macro situation improves, or they deliver better recovery of ROE than the market thinks."

Japan's Prime Minister Yoshihide Suga speaks during a news conference regarding the Covid-19 situation in the country from his official residence in Tokyo on August 17, 2021.

Kimimasa Mayama | AFP | Getty Images

Japan is set to get a new prime minister and that could usher in more fiscal stimulus, boosting some of the country's banks, according to Jefferies.