Financials

Report by Astris Advisory Japan

While BOJ policy normalisation has boosted bank earnings expectations, it has also destabilised the JGB market and raised fears of a sovereign credit downgrade (risks reminiscent of the recent US downgrade by Moody’s). Japanese financials have absorbed nearly 50% of ETF inflows over the past year, but recent outflows suggest sentiment is shifting. Unrealised bond losses and rising fiscal concerns are mounting and the “Japan Premium” for USD funding could return. Neil Newman sees the sector as home to some of the market’s most crowded trades. He highlights Nomura as a short and flags Japan’s three megabanks (MUFG, SMFG, Mizuho Financial Group) as increasingly exposed to reversal risks.

Financials

Report by Galliano's Financials Research

The bank plans to sell JPY10trn of foreign government bonds, crystallising a chunk of the JPY2.19trn of unrealised bond losses, as it also looks to raise JPY1.2trn. In this note, Victor Galliano explores the bigger cap banks’ foreign bond holding and unrealised gains or losses, including those of Japan Post Bank. He believes Norinchukin is a sector outlier rather than big cap bank canary in the coalmine. Victor sticks with buys on Resona, Mizuho, SMFG and Concordia.