2025-04-04T09:32:58.000Z

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TOKYO: A severe global selloff in bank shares has escalated, with Japanese bank stocks experiencing their worst weekly loss in over four decades. On Friday, as fears of a potential global recession intensified, shares in major Japanese banks plummeted, contributing to a larger trend of declining values for banks in the U.S. and Europe.

As key indicators of economic growth, banks worldwide are feeling the pressure of changing trade dynamics, particularly as the United States shifts away from the free trade agreements it has upheld for decades. Under the administration of President Donald Trump, the U.S. has implemented the highest tariff barriers in a century, significantly impacting global market sentiment.

This week saw Japan's three major banks—Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group—experiencing stock price declines of 20 percent or more, marking the most significant downturn since the financial crisis of 2008. This alarming trend serves as one of the clearest signals regarding the potential repercussions of Trump's trade policies.

In Europe, bank shares faltered as well, with a composite index tracking banks in the region falling 6.5 percent during early trading on Friday, reaching levels not seen since early February. This followed a substantial 5.5 percent drop the previous day.

In the U.S., major banking institutions faced severe losses, with Citigroup’s shares plummeting by over 12 percent, and Bank of America declining by 11 percent. Other notable banks like Morgan Stanley, Goldman Sachs, and Wells Fargo also saw their stock prices drop by more than 9 percent each.

Fred Neumann, the chief Asia economist at HSBC, stated, “The world has changed, and in few economies do these changes reverberate as strongly as in Japan.” His insight underscores the unique vulnerability of Japan's financial sector amidst global shifts.

The flight of investors towards safer assets, such as government bonds, led to a significant spike in Japanese government bond futures, approaching levels that could trigger a trading halt. Consequently, yields—the interest rates that bondholders earn—were poised for a drop of 35 basis points for the week, marking the sharpest decline since 1993.

Market participants had been anticipating at least one interest rate hike by the Bank of Japan this year. However, the current market climate has effectively quashed those expectations, leading to a large-scale unwinding of previous optimistic bets on interest rate increases and the associated widening of lending margins.

Sean Taylor, the chief investment officer at Matthews Asia, noted that with the recent drop in U.S. 10-year yields and a reduction in anticipated rate cuts, there is growing concern regarding Japan's ability to raise interest rates. “So Japanese banks are factoring in no rate hike,” he explained.

In the stocks of Japan’s largest bank by market capitalization, Mitsubishi UFJ Financial Group, shares fell by 8.5 percent on Friday, culminating in a total weekly loss of 20 percent—the largest since 2003. Mizuho Financial Group experienced an 11 percent drop on Friday, amounting to a staggering 22 percent decline for the week, representing its biggest weekly drop since 2008. Similarly, Sumitomo Mitsui Financial Group saw a decline of 8 percent on the day and over 20 percent for the week. Collectively, these three institutions lost more than 10 trillion yen (approximately $69 billion) in market value this week alone.

Amir Anvarzadeh, a Japan equity strategist at Asymmetric Investors, remarked, “It’s a wholesale move out of banking stocks, and I think this will continue.” This sentiment reflects a broader shift in investor attitudes towards the banking sector amid ongoing uncertainties.

In the U.S., banking shares had enjoyed a strong position just a few weeks ago, buoyed by optimistic projections for 2025 stemming from anticipated deregulation in mergers and acquisitions, along with lower corporate tax rates.

In Japan, the TOPIX banks index, which had recently reached a 19-year high just two weeks prior, is now down by 24 percent from that peak. The weekly drop of 20.2 percent is the largest decline recorded by LSEG data going back to 1983.

The benchmark Nikkei share average concluded trading on Friday with a 2.75 percent decline, with other sectors including insurers, semiconductor manufacturers, and shipping companies also among the most affected. The average's weekly decline of 9 percent is the most significant since the market crash that occurred in March 2020, driven by the pandemic.

By Friday afternoon, benchmark 10-year Japanese government yields had dropped nearly 20 basis points, resulting in a cumulative decline of over 38 basis points for the week—the largest fall since 1990.

Ales Koutny, head of international rates at Vanguard, commented on the current market climate, stating, “It is quite incredible. We are putting this down to hedge funds running for the exits.”

For reference, $1 is equivalent to approximately 146.0500 yen.