Japanese banks are undergoing a historic shift, now actively competing for deposits after decades of ample reserves. This change is driven by growing domestic lending opportunities and a significant behavioural shift among consumers. With the Bank of Japan gradually raising rates and inflation eroding savings, households are increasingly moving cash into a booming stock market, spurred by the expanded tax-free NISA programme. This dynamic forces banks to innovate or risk impeding lending.
The government’s encouragement for savers to make household cash more productive has seen strong uptake. Investments through NISA accounts more than doubled over two years to the end of 2025, reaching 71 trillion yen ($445 billion). This influx has coincided with Japan’s benchmark index hitting record highs, supported by an AI-driven investment boom and governance reforms. Individual investors, like Yohei Fujiwara, are actively engaging with the market, viewing NISA as a safe part of their savings.
The evolving landscape is reflected in the loan-to-deposit ratio at Japanese banks, which rose to 65.7% by September 2025, the highest since March 2020. With rising corporate investment in areas like semiconductors and decarbonisation creating new domestic lending opportunities, securing deposits is critical. Sumitomo Mitsui Financial Group (SMFG) is one of Japan’s largest financial institutions, providing banking, securities, leasing, and credit card services globally. SMFG is rolling out “Olive” retail accounts, integrating securities and payments. Mitsubishi UFJ Financial Group (MUFG) launched its “Emut” service, and Mizuho Financial Group issued dollar bonds for funding, with banks also focusing on transaction banking.
SMFG CEO Toru Nakashima noted banks will need to be more selective about lending. Mizuho CEO Masahiro Kihara highlighted a “virtuous cycle of wages and prices” and a changing investment mindset. He believes productivity improvements from AI and industrial restructuring offer a significant opportunity to enhance Japanese industry’s competitiveness.
