Shares in Japan's megabanks came under pressure on April 3 after US President Donald Trump imposed higher-than-expected tariffs, raising fears that expected interest rate hikes will be delayed.
The stock price of Mitsubishi UFJ Financial Group Inc. plunged 7.1% in April 3 trading, while Sumitomo Mitsui Financial Group Inc.'s was down 7.6% and Mizuho Financial Group Inc.'s fell 7.9% — all higher on day losses than the 2.7% drop in the Nikkei Average Index. A banking stocks index also fell, dropping 7.2%.
Japan's lenders, particularly the megabanks, had hoped expected interest rate rises would boost net interest margins. The Trump administration tariffs have cast those rate hikes into question.
"No way. That will never happen," Hiroshi Kubotani, a senior economist at NLI Research Institute, said about expectations that the Bank of Japan (BOJ) may raise interest rates in July. This delay "should be the reason" for the fall in megabanks' stocks, Kubotani said.
Trump tariffs
The Trump administration announced that the US will impose a 24% reciprocal tariff on Japanese goods, effective April 9, while the US is set to impose a 25% levy on Japan-made automobiles bound for the US market. The tariff salvo is fueling concern that the Japanese economy will slow, forcing the central bank to be more cautious over interest rates.
The BOJ raised its policy rate to 0.5% from 0.25% in January, the third hike since it moved away from negative interest rates in March 2024. The central bank's benchmark interest rate is now at its highest level since 2008, and many economists had expected it to rise to 1.0% by the end of 2025 as part of monetary policy normalization.
BOJ Governor Kazuo Ueda previously indicated that tariffs would play a part in the central bank's approach. "Once the [US] tariff policy is detailed, we will put it into consideration for our policy," Ueda said at a press conference following the Jan. 24 policy meeting.
"The drop in the major bank stocks today is partly profit-taking after their outperformance in the first quarter, and possibly reflecting smaller probability of policy rate hikes after the larger-than-anticipated Trump tariffs which may result in a slowdown of both the US and Japanese economies," Michael Makdad, a senior analyst at Morningstar, told S&P Global Market Intelligence.
The Organisation for Economic Co-operation and Development downgraded its forecast for Japan's gross domestic growth to 1.1% in 2025 in March, 0.4 percentage points lower than its December estimate. That compares with a 0.1% GDP growth in 2024. The Mitsubishi Research Institute on Mar. 11 also estimated Japan's economy would grow 1.1% in 2025.
"Now, I'm pessimistic the estimated growth could not be reached," Yuta Asai, an economist at Mitsubishi Research Institute, told Market Intelligence after the tariff announcement. "A combination of the 24% reciprocal tariff with 25% auto tariff will put a drag on the Japanese economy. Given that, the BOJ won't raise rates higher and higher," Asai added.
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