Japan's positive rates lift bank earnings

The benefits will outweigh higher bond valuation losses and deposit costs, Fitch said.

Japan’s return to positive rates is supporting major banks’ ability to generate more sustainable earnings from domestic banking activities, according to Fitch Ratings.

The positive rates remove banks’ long-standing constraint on profitability and internal capital generation, the credit rating company said in a September 2026 commentary.

“We expect this benefit to outweigh higher bond valuation losses, rising deposit costs and gradually higher borrower debt-servicing burdens over the next one to two years,” Fitch said.

Recent results of major banks also indicate that they are benefiting from higher domestic asset yields, better returns on liquid assets, and reinvestment of maturing securities at higher yields.

“Stronger corporate activity, sustained inflation and wage growth should support lending, transaction activity and fee-generating business lines, extending the earnings benefit beyond margin expansion,” Fitch said.

These would also help borrowers absorb gradually rising interest costs better, compared to Japan’s deflationary era, it added.

Household credit quality remains broadly sound, Fitch said, whilst corporate leverage has generally declined whilst debt-servicing burdens remain relatively low.

Wage growth, substantial household financial assets and the gradual pass-through of higher rates to mortgage repayments should limit near-term debt-servicing stress, it added.

“We do not expect a material rise in credit costs at the mega banks, although weaker small and medium-sized enterprises and households with floating-rate mortgages are likely to be more rate-sensitive,” Fitch said.