Japan's Nikkei Flat Amid Stronger Yen; Banks Predict Record Profits Amid Trade Worries

Japanese stocks opened flat amid a stronger yen, while banks forecast record profits amid trade worries. The Nikkei fell for the second day as the strong yen weighed on the market. Despite trade talk progress, investors turned cautious, causing stocks to retreat. The Nikkei reversed gains on sell-off to book profits and later jumped to a three-month peak on the Sino-US tariff truce.

Japanese stocks opened flat on Monday, May 16, 2025, amid a stronger yen. The Nikkei 225 Index remained relatively stable, with the TOPIX Index rising by 0.62% [1]. Key players such as Mitsubishi UFJ Financial, Toyota Motor, and China National Pharmaceutical Group saw gains of over 2%, while Hitachi Ltd, Canon Inc., SoftBank Group, Tokyo Marine Holdings, and Nintendo experienced increases of over 1% [1].

The yen's appreciation, coupled with the ongoing trade tensions between the U.S. and China, weighed on the market. Despite progress in trade talks, investors remained cautious, leading to a retreat in stock prices. The Nikkei 225 Index reversed its gains on a sell-off to book profits and later surged to a three-month high on the Sino-US tariff truce [1].

In contrast to the stock market's cautious stance, Japan's three largest banking groups—Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Financial Group (SMFG), and Mizuho Financial Group—forecasted record profits for the current financial year. MUFG expects a net profit of 2 trillion yen ($12.76 billion), SMFG projects 1.3 trillion yen, and Mizuho anticipates 940 billion yen. These projections are despite the economic uncertainty stemming from U.S. President Donald Trump's tariffs and the resulting global economic slowdown [2].

The banks attribute their robust earnings to increased corporate activity due to the end of deflation in Japan. The return of inflation has also led to the Bank of Japan ending its policy of negative interest rates, raising lending margins for Japanese banks [2]. Additionally, the banks' extensive overseas operations and diversified sources of profit have contributed to their resilience in various business environments.

However, the tariff uncertainty has prompted SMFG to hold off on further acquisitions. MUFG's holding in U.S. bank Morgan Stanley, which began in 2008, contributed more than a quarter of its annual net profit [2]. Asia, particularly India, has been a growth market for the banks, with SMFG recently acquiring a 20% stake in Indian private lender Yes Bank [2].

In summary, while Japanese stocks faced challenges from a stronger yen and trade worries, the banking sector remains optimistic about its financial prospects. The end of deflation and the return of inflation have provided a significant boost to the banks' earnings, despite the ongoing economic uncertainty.

References:
[1] https://www.moomoo.com/news/post/88011109/record-tr4cking-news-default
[2] https://www.asahi.com/ajw/articles/15767852