Investing.com-- Major Japanese bank stocks rose on Friday as a surge in government bond yields and expectations of more interest rate hikes pointed to improving margins for local lenders.
Mizuho Financial, Sumitomo Mitsui Financial, Mitsubishi UFJ Financial, Japan Post Bank, and Resona jumped between 3.2% and 4.5%, underpinning an over 1% rise in the Nikkei 225.
Japanese government bond yields surged this week, with the 10-year rate hitting a 30-year high as rising oil prices fueled concerns over rising inflation and interest rates.
Yields tracked overnight advances in their U.S. peers, amid rapidly growing expectations that the Federal Reserve will be forced to hike interest rates further to quell sticky inflation.
Bets on more Bank of Japan rate hikes also underpinned Japanese banks, after the BOJ raised rates by 25 basis points last week and warned of more such moves in the coming months.
Higher lending rates boost bank lending margins, widening the gap between what lenders earn on loans and the returns they pay on deposits.
Japanese bank valuations are already beginning to reflect this increase, and are trading up between 50% and 90% over the past 12 months.
Japan Post was an outperformer in the group, given that the lender's massive government bond book allows it to earn more on reinvesting at higher yields.
But rising rates also dampen credit activity and increase credit risks, especially if rates increase too quickly.
Original Article
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