Key focus for Japanese banks' 1Q results: whether the rate hike is incorporated into guidance and regional bank buybacks

Overview

This report focuses on the Japanese banking industry's 1Q FY2026 earnings season. Key questions include whether the June BOJ rate hike is incorporated into company guidance, whether major regional banks announce share buybacks, whether domestic loan growth and lending rates continue to improve, and how AFS securities portfolios are valued amid changes in interest rates and equity markets. The report covers megabanks, trust banks, regional banks, online banks, and financial services companies including SBI Holdings.

Core views

JPMorgan believes the most important focus during the 1Q earnings season is not quarterly profit itself, but whether management is willing to incorporate the benefits of the June BOJ rate hike into full-year guidance. MUFG is considered least likely to experience a major earnings event because it has already assumed a rate hike in mid-2026; SMTG and Japan Post Bank are expected to post relatively high year-over-year profit growth. Among regional banks, as many major regional banks had not announced buybacks by May, the report expects buybacks to become a major shareholder-return action at 1Q results. On the lending side, domestic loan growth and rising TIBOR support improvement in net interest income; on the securities side, bond valuation pressure remains, but the equity market rally provides a buffer for overall AFS valuations.

Analysis framework

The report uses an earnings-outlook framework that combines company guidance assumptions, 1Q net profit year-over-year growth, shareholder-return plans, loan balance growth, lending-rate benchmarks, bankruptcy data, simulations of bond and equity AFS valuations, online bank deposit growth, and securities business trading revenue to assess the Japanese banking sector's near-term earnings and potential catalysts.

Methodology notes

• earnings_outlook1Q earnings catalyst analysis

  Guidance revisions and shareholder returns

  Assesses management confidence and propensity for capital returns by observing whether banks incorporate the June BOJ rate hike into guidance and announce buybacks at 1Q results.

• balance_sheet_analysisLoan and interest-rate sensitivity analysis

  Loan balance growth, TIBOR, and net interest income

  Uses BOJ lending statistics, loan growth by category for megabanks and regional banks, and changes in 3M TIBOR to assess room for improvement in loan yields and net interest income.

• valuation_riskAFS securities valuation simulation

  Bond duration, yield changes, and equity market performance

  Based on changes in JGB and US Treasury yields and TOPIX performance, estimates changes in unrealized gains and losses on foreign bonds, Japanese bonds, and equity holdings, as well as their impact on capital.

Asset mapping & comparison

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

• Mitsubishi UFJ Financial Group (MUFG)

  Megabank representative

  Strengths

  Its guidance already assumes a rate hike in mid-2026, making earnings expectations more stable.

  Weaknesses

  Its 1Q results are considered least likely to produce a major event, so near-term catalysts may be limited.

  Comparison

  Compared with other banks, MUFG has a lower probability of raising guidance.

  Risks

  If the market expects a more positive revision, the lack of an earnings event may limit short-term performance.

• Sumitomo Mitsui Trust Group (SMTG)

  Trust bank

  Strengths

  Expected to record sizable equity-sale gains and one-off profits in 1Q, resulting in relatively high year-over-year net profit growth.

  Weaknesses

  Profit growth may include one-off factors, and sustainability requires further verification.

  Comparison

  SMTG is expected to deliver stronger 1Q profit growth than most banks.

  Risks

  The resilience of core earnings remains to be seen after one-off gains fade.

• Japan Post Bank (JPB)

  Megabank/postal savings bank

  Strengths

  Profit is expected to rebound because international segment NII in 1Q FY2025 was weak due to the lagged impact.

  Weaknesses

  The securities portfolio and interest-rate changes have a significant impact on valuation and capital.

  Comparison

  The report expects JPB to post relatively high year-over-year profit growth.

  Risks

  Japanese bond valuation losses and long-duration assets pose pressure on capital and market sentiment.

• Shizuoka Financial Group

  Major regional bank

  Strengths

  Expected to potentially announce a buyback of approximately ¥40 billion, supporting shareholder returns.

  Weaknesses

  Regional bank profit growth may diverge due to differences in credit costs or the base effect from securities-sale losses.

  Comparison

  Along with Yokohama Financial Group, it is one of the regional banks highlighted as a likely buyback announcer.

  Risks

  A smaller-than-expected buyback or failure to raise guidance could weaken the positive catalyst.

• Yokohama Financial Group

  Major regional bank

  Strengths

  Expected to potentially announce a buyback of approximately ¥40 billion.

  Weaknesses

  Historical M&A factors affect the definition of loan balances, so comparability requires attention when interpreting results.

  Comparison

  Along with Shizuoka Financial Group, it is viewed as a potential announcer of a relatively large buyback.

  Risks

  If buybacks and loan growth fall short of expectations, short-term valuation support may weaken.

• Rakuten Bank

  Online bank

  Strengths

  Deposits have maintained year-over-year growth of 13–15% since the beginning of 2026, with online bank deposits continuing to expand.

  Weaknesses

  Some of the growth reflects a low base, and sustainability remains to be seen.

  Comparison

  As the online bank in the coverage universe, its deposit growth is an important metric differentiating it from traditional banks.

  Risks

  A slowdown in deposit growth could affect the growth-scale narrative.

• SBI Holdings

  Financial services and securities business

  Strengths

  Margin-trading-related revenue and gains from subsidiary sales support pretax profit growth in the core financial services business.

  Weaknesses

  The report expects 1Q net profit to decline year over year, mainly due to quarterly fluctuations in the tax rate and noncontrolling interests.

  Comparison

  Unlike traditional banks, SBI relies more on securities trading, financial income, and market activity.

  Risks

  A month-over-month slowdown in over-the-counter FX margin trading during April–May could weigh on revenue if market trading activity declines.

Key data

• Year-over-year growth in average domestic loan balances+5.7% YoYBOJ statistics show that average domestic loan balances increased 5.7% year over year in May 2026.
• Megabank lending growth to large corporations+14% YoYYear-over-year growth in megabank lending to large corporations accelerated from approximately +10% in March 2026 to +14% in May.
• TOPIX quarterly performance+14% QoQTOPIX rose sharply from the end of March to the end of June 2026, helping increase valuation gains on banks' equity holdings.
• Rakuten Bank deposit growth+13–15% YoYSince the beginning of 2026, Rakuten Bank's deposit balance growth has remained at 13–15% year over year, partly reflecting a low base.
• Expected buybacks by Shizuoka FG and Yokohama FGApproximately ¥40 billion eachJPMorgan expects the two companies may announce buybacks at 1Q results equivalent to or close to their full-year forecast amounts.
• SBI core financial services pretax profit forecast+34% YoYThe report expects SBI Holdings' core financial services pretax profit to rise 34% year over year in 1Q, supported by gains from subsidiary sales.

Impact & implications

If more banks raise guidance during the 1Q earnings season to reflect the June rate hike, the market may interpret this as confirmation of the transmission of benefits to net interest income and business progress; if major regional banks announce buybacks as expected, shareholder-return expectations may provide further valuation support. Conversely, if guidance remains unchanged or securities valuation pressure, one-off losses, and credit costs weigh on profits, short-term market reactions may diverge.

Risks

• Banks may not raise guidance at 1Q results, weakening market confidence in the transmission of rate-hike benefits.
• Rising Japanese and foreign bond yields may continue to worsen AFS bond valuation gains and losses.
• Some banks had high bases in 1Q FY2025 due to asset-sale gains, tax benefits, or other one-off factors, potentially causing 1Q FY2026 net profit to decline year over year.
• Seven Bank's subsidiary may recognize a special loss in 1Q FY2026.
• Differences in regional bank credit costs or securities-sale losses may lead to divergent earnings.
• SBI Holdings' net profit may be affected by quarterly fluctuations in the tax rate and noncontrolling interests.

What to watch

• Which banks incorporate the June BOJ rate hike into full-year guidance when 1Q FY2026 results are released.
• Whether major regional banks announce buybacks and whether the buyback sizes are close to JPMorgan's expectations.
• The speed at which 3M TIBOR and lending rates pass through to net interest income.
• Domestic loan balances, especially year-over-year growth in megabank and regional bank lending to large corporations.
• The combined changes in valuation gains and losses on Japanese bonds, foreign bonds, and equities in AFS securities portfolios.
• Whether Rakuten Bank's deposit growth remains in the double-digit range.
• Trends in SBI Securities' margin trading balances, FX trading volumes, and related financial income.