Remain Bullish on Megabanks: ROE Enhancement and Capital Policy in Focus

Research evidence excerpt

Remain Bullish on Megabanks: ROE Enhancement and Capital Policy in Focus

Update

July 23, 2026 07:52 AM GMT

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

Equity Analyst

Remain Bullish on Megabanks: Mia.Nagasaka@morganstanleymufg.com +81 3 6836-8406

ROE Enhancement and Capital

Policy in Focus Banks

Japan

Industry View Attractive

Key Takeaways

A Bloomberg article on July 22 suggested the BoJ is open to a faster pace of

additional rate increases than the market has anticipated.

We remain bullish on bank stocks, with a preference for megabanks.

Focus shifting to sustainability of ROE improvements: Our macro team expects

the BoJ to leave the policy rate unchanged at 1.0% at the July 30-31 meeting. While

we position an additional rate hike at the October meeting as a risk scenario, we

think an increase at the December meeting, six months after the previous hike, is

somewhat more likely. We think valuations for the bank stocks in our coverage are

generally starting to price in hikes to a policy rate around 1.25%. That said, interest

rate normalization in Japan is still underway, and we see limited downside for bank

share prices as long as the outlook for continued ROE improvement and enhanced

capital efficiency remains intact. Looking ahead, we think the focus of evaluations

will shift from interest-rate trends themselves toward earnings capacity

improvements and the development of capital policies that are not dependent on

the interest rate environment. We expect generally solid 1Q results. Our base case

looks for upward revisions to full-year guidance along with 2Q results, but we 1Q

earnings will confirm strong progress toward profit targets. In addition, we think

inflows of funds to megabanks are likely to continue, with a tailwind from hedging