Banks: Japan’s Rate Normalization and ROE Outlook: Lessons from the European Experience

Research evidence excerpt

Banks: Japan’s Rate Normalization and ROE Outlook: Lessons from the European Experience

Global Foundation

May 18, 2026 08:00 PM GMT

Morgan Stanley MUFG Securities Co., Ltd.+MBanks Mia Nagasaka

Equity Analyst

Japan’s Rate Normalization and Mia.Nagasaka@morganstanleymufg.comMorgan Stanley Europe S.E., Madrid Branch+ +81 3 6836-8406

Alvaro Serrano

Equity AnalystROE Outlook: Lessons from the Alvaro.Serrano@morganstanley.com +44 20 7425-6942

Morgan Stanley & Co. International plc+European Experience Franco Insausti, CFA

Europe’s deposit cycle provides an important precedent for Franco.Insausti@morganstanley.com +44 20 7677-3769

assessing how Japanese banks’ earnings structures may evolve Banks

following rate normalization, however growth in Wealth JapanIndustry View Attractive

Management and stronger pricing discipline will also be key to

drive ROEs and re-rate Japanese bank stocks higher.

Key Takeaways

Europe’s deposit cycle serves as a critical leading reference for assessing Japan’s

future path.

Japanese banks are currently benefiting from the initial phase of interest rate

normalization; the next valuation driver will be the sustainability of ROE

expansion, which requires the expansion of wealth management, robust digital

strategies, and improved capital allocation.

Just as European banks were re‑rated through a combination of profitability

recovery and enhanced shareholder returns, we believe that the quality of

management strategy will increasingly determine the share price performance of

Japanese bank stocks going forward.

Lessons from European Banks: In this report, we analyze the experience of

European banks—which entered a rate‑hiking cycle ahead of Japan—and distill the

key implications for Japan’s banking industry. A particularly important observation is