Japan’s banking sector is not an easy place to navigate. The country's demographic challenges – an ageing population and shrinking workforce – and macroeconomic issues such as deflation, low interest rates, corporate stagnation and low consumption demand are not making for a smooth ride.
One of the biggest impacts on Japanese banks is diminishing interest income. The country's two-decade-long deflation period saw the Bank of Japan set low rates from as early as the early 2000s. Deflation squeezed local corporates’ capital expenditure demand and low rates squeezed banks’ interest income. This means lenders are having to diversify revenue sources and reinvent themselves.
