Japan Megabanks Raise Profit Forecasts, Flag Data Centre Risk

Japan megabanks Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG) and Mizuho Financial Group raised their full-year profit forecasts on 13 November and stepped up share buybacks, as higher domestic interest rates widened lending margins. The upgrades came with a warning. Two of the chief executives flagged a possible slowdown in AI-linked data centre investment as a risk to the outlook.

MUFG now expects net profit of ¥2.8 trillion (about US$17.5 billion) for the year ending March 2027, up from ¥2.7 trillion. SMFG lifted its forecast to ¥1.9 trillion (about US$11.9 billion) from ¥1.7 trillion. Mizuho raised its target to ¥1.6 trillion (about US$10 billion) from ¥1.4 trillion.

Japan megabanks post strong first-half numbers

MUFG reported a record first-half net profit of ¥1.63 trillion for the six months to 30 September, up 26% from a year earlier. It was the group’s fourth consecutive record first half. The bank announced a share buyback of up to ¥200 billion and raised its annual dividend forecast to ¥100 per share.

SMFG’s net profit for July to September fell 10% to ¥501.8 billion (about US$3.14 billion). The comparison was distorted by a ¥94 billion gain a year earlier from the sale of its stake in India’s Kotak Mahindra Bank. For the first half, SMFG’s net profit rose 7.5% and topped ¥1 trillion for the first time, according to Jiji Press.

Mizuho’s quarterly net profit rose 19% to ¥473.6 billion. The group doubled its share buyback programme to ¥400 billion for the current financial year. SMFG added ¥220 billion to its own buyback, taking the total to ¥400 billion for the year to March 2027.

SMFG’s upgrade was supported by resilient domestic corporate borrowing demand and wider margins from higher Japanese interest rates. The Bank of Japan’s gradual rate increases have widened the gap between loan rates and funding costs.

Data centre lending comes under scrutiny

SMFG chief executive Toru Nakashima warned that a slowdown in data centre investment could affect the Japanese and global economies. He said it could also weigh on the bank’s results over the next six months.

Nakashima said SMFG had adopted “stricter standards on extending credit for data centre financing” this year, limiting such lending to hyperscalers with high credit standing.

Mizuho chief executive Masahiro Kihara pointed to a different risk. He cited the possibility of tighter US restrictions on data centre construction as a tail risk that could slow projects and raise development costs.

The caution is notable because it comes from lenders that are otherwise reporting strong growth. It suggests the banks see the AI investment cycle as a credit risk to manage, not only as a source of new business.

Why the upgrades matter for investors

The combined picture across the sector is strong. All five major Japanese banking groups raised their full-year forecasts, Jiji Press reported. Their combined net profit for the year is now projected at ¥7.06 trillion (about US$44 billion), which would be the first time the total has passed ¥7 trillion.

That compares with the previous record of ¥5,835.1 billion set in the year to March 2026. Combined net profit for April to September reached ¥3,954.2 billion, up 22.4% from a year earlier.

For investors, the larger buybacks are a direct return of capital. MUFG’s new ¥200 billion buyback and the ¥400 billion programmes at SMFG and Mizuho add up to ¥1 trillion (about US$6.3 billion). The figures show how far Japan’s lenders have moved on from the era of near-zero interest rates.

The results also matter beyond Japan. The megabanks are among the largest lenders in Asia, and SMFG’s past stake in Kotak Mahindra Bank shows how actively they invest across the region. Stronger profits at home give them more capital to deploy in Asian markets. Japanese corporate dealmaking has stayed active too, as the Mitsui Chemicals JSR acquisition showed.

What happens next

The next test is the pace of Bank of Japan policy. Further rate increases would support margins, but they would also raise funding costs for corporate borrowers and could slow loan demand.

The banks will also be watched closely on credit quality in data centre and technology lending. Nakashima’s six-month warning sets a clear timeframe. Any weakening in AI-related capital spending would show up first in new loan demand and then, potentially, in asset quality.

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For now, the Japan megabanks are on course for another record year. However, their own executives have made clear that the AI boom carries risks for lenders as well as opportunities.