BOJ rate hike expectations move forward; banks' earnings sensitivity depends on loan repricing and deposit costs

Overview

The report analyzes the impact of rising expectations for near-term BOJ rate hikes on the Japanese banking industry. Goldman Sachs believes that earlier rate hikes and a higher terminal rate generally increase the upside potential for bank earnings and medium-term plans, but the pace at which individual banks benefit varies. The key differences arise from the speed of loan-rate repricing, mortgage rate-reset schedules, cash balances, deposit stability, and deposit beta.

Core views

On August 25, Goldman Sachs economists revised their BOJ rate forecast: in addition to the previously expected 25bp hikes in January and July 2027, they added a 25bp hike in September 2026 and raised the terminal rate forecast from 1.5% to 1.75%. The report states that the possibility of a September or October rate hike reflected in the OIS market, together with rising market expectations for the terminal rate, has made interest rates a core driver of Japanese bank stocks once again. If the policy rate rises to 1.25% earlier, many banks that still base their FY3/27 guidance on a 0.75% policy rate could generate additional profits and upgrade guidance as they enter the 2Q earnings season. Higher rates also create upside potential for banks' medium-term plans. MUFG's plan runs through FY3/27, while the plans of many other banks covered in the report run through FY3/29, and these plans are generally based on policy rates of 0.75% to 1.0%. If actual rates exceed the original assumptions, combined with loan-volume growth, banks' earnings and ROE targets could receive additional support. Sensitivity data show significant differences among banks in the full-year pre-tax impact of a policy-rate increase: approximately +¥180bn for MUFG; approximately +¥110bn in the first year and +¥150bn in the fifth year for SMFG; approximately +¥120bn for Mizuho FG; and approximately +¥60bn for Resona HD. The incremental impact for other banks is relatively smaller, but mostly positive. The order of near-term beneficiaries is primarily determined by the speed of asset repricing. The first category of beneficiaries comprises banks with a higher proportion of TIBOR-linked loans within their large corporate loan portfolios, including the megabanks and Resona. As money-market rates rise, these loans can begin repricing before the BOJ formally raises rates. The second category comprises banks holding larger cash balances that earn interest at the policy rate, such as Japan Post Bank. By contrast, for banks with higher exposure to residential mortgages or investment property loans, the realization of benefits depends more heavily on the month of the rate hike and contractual rate-reset rules. The mortgage business has a clear time lag. If the BOJ raises rates in September 2026, the timing may allow banks to meet the October 1 cut-off date for mortgage benchmark-rate repricing, with the P&L impact appearing from the fourth quarter of FY3/27. If the rate hike does not occur until October, most banks may need to wait until the next benchmark-rate repricing on April 1, 2027, with the P&L impact beginning only in the second quarter of FY3/28. MUFG, SMFG, Mizuho, Resona, Yokohama, Chiba, Fukuoka, and PayPay Bank generally reset mortgage rates on April 1 and October 1, with the changes reflected in repayments roughly three months later, in July and January. Aeon Bank and SBI Shinsei Bank reset rates on May 1 and November 1. Rakuten Bank is unusual: loans originated by the end of December 2024 are reset on February 1 and August 1, while loans originated on or after January 1, 2025 are reset monthly on a rolling basis, making them less constrained by a single rate-hike month and uniform cut-off date. The liability side determines whether higher rates can genuinely translate into net interest income. The beta of ordinary deposit rates to the policy rate has remained at approximately 40%, but competition is more intense for time deposits of certain tenors. If the BOJ raises rates in September or October, banks generally raise deposit rates approximately two months later, potentially overlapping with competition for retail time deposits during the December bonus season and thereby increasing funding costs. The report therefore emphasizes that a stable deposit base is as important as asset-repricing capabilities: megabanks rely on their scale and corporate businesses; Resona, Yokohama, and Chiba rely on their regional market shares; and Rakuten Bank, PayPay Bank, and GMO Aozora Net Bank rely on their digital ecosystems or BaaS. Banks with higher deposit betas may find it more difficult to fully realize the upside to net interest income from rate hikes. The guidance and interest-rate sensitivities of the covered banks further illustrate these differences. MUFG's FY26 net profit guidance is ¥2,700bn, based on an FY26 policy rate of 1.0%, with an estimated full-year rate-hike impact of +¥180bn. SMFG's guidance is ¥1,700bn, assuming 0.75%, with an estimated impact of +¥110bn in the first year and +¥150bn in the fifth year. Mizuho FG raised its guidance from ¥1,300bn to ¥1,400bn and increased its policy-rate assumption from 0.75% to 1.0%, with an estimated full-year impact of +¥120bn. SMTG's guidance is ¥380bn, assuming 0.75%, with an estimated full-year impact of +¥6bn for every 10bp increase. Resona HD raised its guidance from ¥310bn to ¥330bn and increased its assumption from 0.75% to 1.0%, with an estimated full-year impact of +¥60bn. Yokohama FG's guidance is ¥129bn, assuming 0.75%, with an estimated full-year impact of +¥14bn. Chiba Bank's guidance is ¥107bn, assuming 0.75%, with an estimated net profit impact through March 2027 of +¥11bn. Among the other covered banks, Fukuoka FG's net profit guidance is ¥100bn, assuming 0.75%. Based on an assumed rate hike in June 2026, the estimated impacts in FY26 and FY27 are +¥4.5bn and +¥13bn, respectively. Japan Post Bank's guidance is ¥660bn, with its policy-rate assumption based on forward rates; the table provides no explicit sensitivity amount. Aozora Bank's guidance is ¥27bn, assuming a 25bp hike between June and July 2026 and another 25bp hike between January and March 2027, with an estimated full-year impact of +¥3bn. SBI Shinsei Bank does not provide net profit guidance in the table, assumes two rate hikes in FY26, and has an estimated full-year impact of +¥16bn. Rakuten Bank raised its guidance from ¥81.3bn to ¥88.1bn and increased its policy-rate assumption from 0.75% to 1.0%, with an estimated full-year impact of +¥13.9bn. This guidance includes the costs of the Rakuten FinTech Group restructuring project but excludes post-restructuring earnings forecasts for Rakuten Card and Rakuten Securities Holdings.

Analysis framework

The report first uses Goldman Sachs economists' projected BOJ rate-hike path as the macro scenario and then compares it with the policy-rate assumptions used in each bank's FY3/27 guidance and medium-term plan to assess potential earnings-upgrade opportunities. It subsequently breaks down the speed and magnitude of transmission from rate changes to net interest income and profits by examining TIBOR loans, cash balances, and mortgage rate-reset schedules on the asset side, as well as deposit beta, competition for time deposits, and deposit-base stability on the liability side. Finally, it conducts a cross-bank comparison using each bank's disclosed interest-rate sensitivity.

Methodology notes

• Financial industry-specific metricsNet interest margin (NIM) analysis

  Asset repricing and deposit beta analysis

  The report compares the pace of increases in loan and cash yields with the pace of increases in deposit costs to determine whether a higher policy rate can translate into incremental net interest income. The approximately 40% policy-rate beta of ordinary deposits, competition for time deposits, and rate-reset rules for different loan categories are the main variables.

• Event-driven strategies and behavioral financeEvent-driven analysis

  Scenario analysis of a BOJ rate hike in September or October

  The report treats the month of the rate hike as the triggering event, analyzing whether it occurs in time for the mortgage-rate reset cut-off date and using this to determine whether the earnings impact appears in the fourth quarter of FY3/27 or is deferred until the second quarter of FY3/28.

• Corporate fundamentals and financial frameworksOperating/financial leverage analysis

  Policy-rate sensitivity estimates

  The report uses the incremental profit corresponding to each rate hike or rate increase disclosed by the banks to compare the magnitude of the impact of the same rate change on different banks' pre-tax or net profits.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MUFG（8306.T）

  TIBOR-linked large corporate loans are expected to reprice relatively quickly, with an estimated full-year impact of approximately +¥180bn from a higher policy rate.

  Strengths

  Scale and corporate business support a stable deposit base, with FY26 net profit guidance of ¥2,700bn.

  Weaknesses

  Some mortgage rates are reset uniformly on April 1 and October 1, making the realization of benefits dependent on the rate-hike date.

  Comparison

  It has the highest full-year impact amount from a policy-rate increase in the table.

  Risks

  Higher deposit rates could offset part of the improvement in asset yields.

• SMFG（8316.T）

  Large corporate loans could benefit from rising money-market rates, with an estimated profit impact of approximately +¥110bn in the first year and +¥150bn in the fifth year.

  Strengths

  Its scale as a large bank and corporate business support the maintenance of its deposit base.

  Weaknesses

  Mortgage loans use fixed reset dates, so the transmission timing depends on the month of the rate hike.

  Comparison

  The long-term impact exceeds the first-year impact, indicating that benefits are released gradually through repricing.

  Risks

  Deposit competition and rising liability costs could weaken the incremental net interest income.

• Mizuho FG（8411.T）

  The estimated full-year impact of a higher policy rate is approximately +¥120bn.

  Strengths

  Net profit guidance was raised from ¥1,300bn to ¥1,400bn, while the policy-rate assumption increased from 0.75% to 1.0%.

  Weaknesses

  The realization of mortgage-loan benefits remains constrained by the April and October reset dates.

  Comparison

  Its rate-hike sensitivity is lower than MUFG's but higher than that of most regional banks.

  Risks

  Higher deposit costs could offset part of the interest-rate benefit.

• SMTG（8309.T）

  For every 10bp increase in the policy rate, the estimated full-year profit impact is approximately +¥6bn.

  Strengths

  It provides explicit incremental interest-rate sensitivity.

  Weaknesses

  The report does not provide details on its asset-repricing and deposit advantages.

  Comparison

  Its sensitivity is measured per 10bp and cannot be directly equated with the 25bp basis used for other banks.

• Resona HD（8308.T）

  TIBOR loans can reprice in advance, with an estimated full-year impact of approximately +¥60bn from a higher policy rate.

  Strengths

  Its relatively large regional market share supports a stable deposit base, and net profit guidance was raised from ¥310bn to ¥330bn.

  Weaknesses

  Mortgage reset dates could still delay part of the earnings transmission.

  Comparison

  It combines relatively rapid corporate-loan repricing with the advantage of a regional deposit base.

  Risks

  If deposit beta rises, the incremental net interest income could be lower than the improvement in asset-side yields.

• Yokohama FG（7186.T）

  The estimated full-year impact of a higher policy rate is approximately +¥14bn.

  Strengths

  Its relatively large regional market share helps maintain a stable deposit base.

  Weaknesses

  Mortgage rates are generally reset only on April 1 and October 1.

  Comparison

  Its sensitivity is lower than that of the large banks and Resona.

  Risks

  If the rate-hike timing misses the rate-reset cut-off date, profit realization will be delayed.

• Chiba Bank（8331.T）

  The estimated net profit impact through March 2027 is approximately +¥11bn.

  Strengths

  Its relatively large regional market share helps create a stable deposit base.

  Weaknesses

  Mortgage repricing is constrained by the fixed April 1 and October 1 schedule.

  Comparison

  The profit impact is smaller than Yokohama FG's, and the disclosed basis is the net profit impact through March 2027.

  Risks

  The rate-hike timing and deposit costs could affect actual benefits.

• Fukuoka FG（8354.T）

  Based on an assumed rate hike in June 2026, the estimated impacts in FY26 and FY27 are approximately +¥4.5bn and +¥13bn, respectively.

  Strengths

  The impact in the subsequent year exceeds that in the first year, reflecting gradual asset repricing.

  Weaknesses

  Mortgage rates use fixed reset dates.

  Comparison

  The first-year benefit is relatively small, while the FY27 impact is more fully realized.

  Risks

  A different actual rate-hike month would alter the pace at which benefits are realized.

• Japan Post Bank（7182.T）

  Its larger cash balances earning interest at the policy rate could allow it to benefit directly from rate hikes.

  Strengths

  The yield on cash balances can rise with the policy rate.

  Weaknesses

  The table uses forward-rate assumptions and does not disclose an explicit amount for the rate-hike impact.

  Comparison

  Its benefit mechanism differs from that of banks relying primarily on loan repricing.

• Aozora Bank（8304.T）

  The estimated full-year impact of a higher policy rate is approximately +¥3bn.

  Strengths

  Its guidance already incorporates assumptions for two rate hikes.

  Weaknesses

  Its disclosed full-year sensitivity is lower than that of most covered banks.

  Comparison

  Net profit guidance is ¥27bn, with sensitivity of approximately +¥3bn.

• SBI Shinsei Bank（8303.T）

  Assuming two rate hikes in FY26, the estimated full-year impact is approximately +¥16bn.

  Strengths

  Its disclosed rate-hike sensitivity is higher than that of Yokohama FG, Chiba Bank, and Aozora Bank.

  Weaknesses

  The table provides no net profit guidance, and its mortgage reset dates are May 1 and November 1.

  Comparison

  Its mortgage rate-adjustment dates differ from the April and October schedules used by most banks.

  Risks

  The rate-hike date could affect when mortgage benefits begin to appear.

• Rakuten Bank（5838.T）

  The estimated full-year impact of a higher policy rate is approximately +¥13.9bn, and newer mortgage loans use monthly rolling repricing.

  Strengths

  Its digital ecosystem supports the deposit base, while rolling repricing reduces dependence on a single rate-reset cut-off date.

  Weaknesses

  Net profit guidance includes FinTech restructuring project costs and excludes post-restructuring earnings forecasts for Rakuten Card and Rakuten Securities Holdings.

  Comparison

  Its mortgage-repricing mechanism is more flexible than that of banks using fixed semiannual reset dates.

  Risks

  Competition for time deposits and higher deposit rates could still affect net interest income.

Key data

• New rate-hike forecast25bp rate hike in September 2026Added to the existing forecast path on August 25
• Existing subsequent rate-hike forecasts25bp rate hikes in January and July 2027Forecasts already included before the revision
• Terminal rate forecast1.5%→1.75%Goldman Sachs economists raised the forecast by 25bp
• Potential near-term policy rate1.25%The level used in the report to discuss additional bank profits and scope for guidance upgrades
• Ordinary deposit betaApproximately 40%The pass-through ratio of policy-rate changes to ordinary deposit rates
• Deposit-rate adjustment lagUsually approximately 2 monthsA rate hike between September and October could overlap with competition for time deposits during the December bonus season
• MUFG rate-hike sensitivityFull-year +¥180bnFY26 net profit guidance of ¥2,700bn, with a 1.0% policy-rate assumption
• SMFG rate-hike sensitivityFirst year +¥110bn; fifth year +¥150bnNet profit guidance of ¥1,700bn, with a 0.75% policy-rate assumption
• Mizuho FG rate-hike sensitivityFull-year +¥120bnNet profit guidance of ¥1,300bn→¥1,400bn, with the rate assumption rising from 0.75%→1.0%
• Resona HD rate-hike sensitivityFull-year +¥60bnNet profit guidance of ¥310bn→¥330bn, with the rate assumption rising from 0.75%→1.0%
• Rakuten Bank rate-hike sensitivityFull-year +¥13.9bnNet profit guidance of ¥81.3bn→¥88.1bn, with the rate assumption rising from 0.75%→1.0%
• Timing of mortgage earnings impactFourth quarter of FY3/27 or second quarter of FY3/28Corresponding respectively to a September rate hike meeting the October 1 rate-reset cut-off date, or waiting until the April 1, 2027 rate reset following an October rate hike

Impact & implications

The report believes that the advancement of rate-hike expectations has refocused attention on near-term earnings upside for the Japanese banking industry, but the degree of benefit cannot be assessed solely based on the direction of interest rates. Banks with more TIBOR loans and cash balances, stable deposit bases, and lower deposit betas may realize benefits more quickly. For banks with higher mortgage exposure or greater pressure from deposit competition, the benefits may be delayed or offset by funding costs. A higher terminal rate also creates upside potential for medium-term plans originally formulated using rate assumptions of 0.75% to 1.0%.

Risks

• If competition for retail time deposits intensifies during the December bonus season, higher funding costs could weaken the incremental net interest income from rate hikes.
• Banks with higher deposit betas may be unable to fully realize the earnings upside from a higher policy rate.
• If the BOJ does not raise rates until October, most banks with higher mortgage exposure could miss the October 1 repricing window, delaying the related P&L impact until the second quarter of FY3/28.

What to watch

• Monitor whether the BOJ ultimately raises rates in September or October 2026 and whether the policy rate reaches 1.25%.
• Monitor whether the near-term rate-hike probability and terminal-rate expectations reflected in the OIS market continue to rise.
• Monitor whether banks upgrade their FY3/27 guidance during the 2Q earnings season due to changes in interest-rate assumptions.
• Monitor the October 1 mortgage benchmark-rate repricing cut-off date and the specific rate-reset schedules of different banks.
• Monitor deposit-rate adjustments approximately two months after a rate hike and the degree to which they overlap with competition for time deposits during the December bonus season.
• Monitor whether loan-volume growth can further expand the upside potential of medium-term plans relative to their original interest-rate assumptions.