The Japanese banking sector has not had an easy ride. It has faced a low-interest-rate environment for decades due to the Bank of Japan's loose monetary policy to tackle almost 20 years’ worth of deflation. Demographically, Japan has an ageing population, low fertility rates and a shrinking work force. A general lack of innovation has seen its corporate sector stagnate, while its small and medium-sized enterprises (SMEs) have struggled to flourish. Until recently, private consumption had remained low for years, while the country's gross domestic product growth shrunk by 0.1% percentage points in 2014.
This tough environment has affected the performance of Japan's banks. Though well capitalised by global standards, Tier 1 capital for Japan’s mega-banks – Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG) and Mizuho Financial Group – has slightly deteriorated year on year in 2015, according to The Banker Database. Their pre-tax profits have also declined in the same time period.
