Sumitomo Mitsui Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. rose to the highest since August 2009 as Japanese lenders rallied after the central bank announced its biggest round of quantitative easing.
Mitsubishi UFJ, Japan’s largest bank, climbed 5 percent to 607 yen at the close in Tokyo. Sumitomo Mitsui, the country’s second-biggest lender by market value, closed 4.8 percent higher at 4,150 yen after gaining as much as 16 percent.
The Nikkei 225 Stock Average advanced to the highest since September 2008, a day after the Bank of Japan said it will double the monetary base by the end of 2014 to end more than a decade of deflation. Ten-year government bond yields touched a record low, boosting the value of banks’ 164 trillion yen ($1.7 trillion) in holdings of sovereign debt.
“Expectations for inflation under the BOJ’s new policy would have a positive effect on bank lending,” said Shinichiro Nakamura, a Tokyo-based analyst at SMBC Nikko Securities Inc. “Monetary easing drives long-term interest rates lower and that’s good news for the banks’ bond trading profit.”
The Topix Banks Index climbed 5 percent, extending its advance this year to 35 percent. Sumitomo Mitsui Trust Holdings Inc., Japan’s fourth-biggest bank by market value, surged 17 percent, the biggest gainer on the 85-stock gauge. Shinsei Bank Ltd. increased 8 percent. Mizuho Financial Group Inc., the third-largest lender by market value, rose 1.5 percent.
Japanese banks have been accumulating government debt with excess cash parked by households and companies that are shunning credit as wages and prices fall. Deposits exceeded loans by 172.6 trillion yen in February, close to a record, according to central bank data.
With yields falling, lenders have been relying on returns from their bond holdings for profit. They also stand to earn from Japan’s stock rally as the value of their portfolios rises.
“In terms of trading gains the banks are benefiting from a unique situation where equities are rising and bond yields are falling, allowing them to post equity gains and bond gains,” Mac Salman, an analyst at Jefferies Group LLC, wrote in a note. He has a buy rating on Japan’s three biggest banks.
Combined lending income at Mitsubishi UFJ, Sumitomo Mitsui and Mizuho fell 11 percent in the nine months ended December, while trading income surged more than eight times, according to data compiled by Bloomberg based on company filings.
“Clearly, the BOJ wants to force the banks to do something else with their money, other than buy JGBs,” Curtis Freeze, Tokyo-based chief investment officer at Prospect Asset Management Inc., said in a Bloomberg television interview with Rishaad Salamat. “Hopefully, that will create demand for loans. Lending to Japan is not a lucrative business.”