Japan managed only to raise its head from its endless slump, before falling back into the same pattern.

In May, the Bank of Japan finally lowered its forecast for economic growth this fiscal year from 2.1% to 1.5%, falling in line with other estimates. Masaaki Shirakawa, governor of the Bank of Japan, spoke of “downside risks” to the world’s second largest economy. Profits in the private sector have been falling, and heavy government debt at 170% of gross domestic product means that tax cuts and any other stimulus of the economy look unlikely.

Meanwhile, inflation at 0.9% is within the central bank’s zero to 2% range, implying that the bank will not raise rates. The Bank of Japan held its key rate at 0.5% yesterday.

The stock market is plummeting and about half of the country’s companies are trading at less than book value. At a time when Chinese banks are forging ahead with joint ventures and foreign bank acquisitions, Japanese banks have been virtually absent, not least because they invested in structured products in a bid to boost their lack-lustre profitability. Those products are now toxic. Analysts are expecting more write-downs in second quarter results, due out as The Banker went to press.

All of this means that Japanese banks, which should have been investing in foreign assets in a search for the growth that is lacking in their home market, had been absent from most recapitalisations in the West. Recently, however, Sumitomo looked set to take a stake in Barclays, while Mizuho had invested about $1.3bn in Merrill Lynch.

As bank shares fall even further in the West, Japanese banks may take this opportunity to make acquisitions. The odds, however, are not high.

An ageing population that is aware of the need to save has, at least, given the banks a fillip in one sector, while the fact that Japan is still the second largest economy in the world does, in itself, lead to banking business.

Still, the seemingly inexorable descent of the Japanese banks on the list continues. Last year, The Banker noted that almost all of the middle-order Japanese banks slipped down the world rankings by at least 10 places, if not considerably more.

The news this year was not much better, with Shoko Chukin Bank, Bank of Yokohama, Chiba Bank, Fukuoka Financial Group, Joyo Bank, Hachijuni Bank and others all heading in a downward direction.

There were a few exceptions. Behemoth Mitsubishi UFJ Financial Group continues to dominate the list, maintaining its number one position in the Japan ranking and its sixth position in the world ranking as its Tier 1 rose to $82,859m from $68,464m.

However, next year’s ranking may be more problematic. The Tokyo-headquartered banking group admitted in May that its exposure to US subprime mortgages totalled ¥81bn ($778.8m) while net profit fell to ¥636.6bn in the fiscal year ending March 31, 2008.

Mizuho Financial Group kept the number 15 position in the world ranking without much of an increase in its Tier 1 – from $41,934m to $48,752m – but next year’s world ranking may be more difficult, as it posted a 50% drop in profits to March 31, 2008 after losing $5.5bn on mortgage securities, arguably the most reported by any Asian company.

The one bright spot was Resona Holdings, which moved up the list briskly, from 55th in world rankings with Tier 1 of $13,189m to 28th in world rankings with Tier 1 of $31,127m. But major moves in the list of the Top 25 Japanese banks were limited.

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