Japanese banks are confronting a notable shift in their funding environment as households redirect cash into equities and corporate investment demand rises. For decades, banks could rely on abundant deposits. Now, with a resurgent domestic opportunity set and savers chasing market returns to counter inflation, lenders are moving to bolster their deposit bases or risk constraining future lending growth.
Interest on deposits has been climbing in step with the Bank of Japan's gradual rate increases, but consumers are also feeling the effects of inflation after a long period of deflation. Policymakers have been urging households to make cash holdings more productive, including through an expanded tax-free stock investment scheme known as NISA, which the government enlarged in 2024.
"Investing through NISA is seen as safe, it’s considered a part of savings," said Yohei Fujiwara, 30, who works for an airline and has invested in infrastructure and electric-related companies in Japan. The amount of money placed through NISA accounts more than doubled over the two years to the end of 2025, reaching 71 trillion yen ($445 billion).
Japan's benchmark equity index has reached record highs, supported by an AI-driven investment surge and corporate governance changes that have helped the market shed its reputation as a place where companies prioritise low shareholder returns. That dynamic is drawing individual investors who previously kept most assets in bank accounts.
"I’m interested in some more adventurous stocks like AI-related companies, but would only invest in a few years’ time once I get a promotion and have more money to spare," Fujiwara added, reflecting a cautious but growing investment appetite among some savers.
Not all new entrants to the market are from finance professions. Junya Oki, a 28-year-old hairdresser, said he began investing about a year ago to build retirement savings and has put money into the S&P 500 and global index funds. "Since I got a raise I have money to spare so I want to put it to use," he said near Shimbashi station in central Tokyo.
Funding pressure and lending demand
Data compiled by Tokyo Shoko Research show the ratio of loans to deposits at Japanese banks rose to 65.7% at the end of September 2025, the highest level since March 2020. Rising interest rates and increased corporate investment in areas such as semiconductors, data centres and decarbonisation are creating greater demand for domestic lending.
"We had a surplus of deposits so our approach had been to lend more and more when there was demand," said Sumitomo Mitsui Financial Group CEO Toru Nakashima. "Going forward, we will have to be a bit more selective about lending than we had been in the past," he added, signalling a shift toward tighter underwriting and more deliberate credit allocation.
To keep retail deposits, SMFG is introducing "Olive" accounts that combine securities and payments functions into a single offering. Mitsubishi UFJ Financial Group has launched a comparable service called "Emut." These product moves aim to make bank accounts more attractive as customers diversify into investments.
SMFG is also forming a joint company with U.S. asset manager Neuberger Berman to invest in domestic leveraged buyout debt. The arrangement is intended to spread credit risk by attracting external funds instead of keeping the loans on the bank's balance sheet. Meanwhile, in April, Mizuho Financial Group turned to the capital markets and issued dollar-denominated straight bonds to lock in funding.
Beyond retail initiatives, banks are placing renewed emphasis on transaction banking services such as payments and cash management to capture firms' day-to-day cash flows and deepen client relationships.
Executive views on the changing landscape
Mizuho CEO Masahiro Kihara observed that household assets were previously left largely untouched, but that a new cycle of rising wages and prices is altering individual behaviour and increasing willingness to invest. He said the shift in household mentality coincides with an opportunity to improve industrial competitiveness.
"With the productivity improvement from AI and progress in industrial restructuring, a very good opportunity has arrived to enhance the competitiveness of Japanese industry," Kihara said, tying the broader economic and corporate trends to both market performance and banks' strategic choices.
($1 = 159.5400 yen)