Bank Deposit Rate War Intensifies in Japan After BOJ Rate Hike, Regional Banks Struggle

Following the Bank of Japan's decision to raise its policy rate to around 1.0%, Japanese private banks are rapidly increasing deposit rates, triggering an intense battle to attract customers. Major banks including Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho have raised their ordinary deposit rates to 0.4%, marking the highest level in 34 years for Mitsubishi UFJ and Sumitomo Mitsui since 1992. Regional banks such as Resona and Yokohama Bank have followed suit, also setting their ordinary deposit rates at 0.4% starting August 3.

Internet-only banks, which operate with lower overhead costs, are offering even higher rates to gain an edge. au Jibun Bank, part of the KDDI group, will raise its standard rate from 0.31% to 0.41% starting August 1, while its premium rate for customers with at least 10 million yen in total assets will increase from 0.65% to 0.75%. PayPay Bank, a subsidiary of smartphone payment giant PayPay, will boost the maximum rate on its step-up savings account from 0.5% to 0.6% on August 1, combined with a 0.1% PayPay point reward program that began in July, effectively raising the total yield even further.

The deposit rate competition is being driven by the widening gap between deposit and lending rates, known as the spread, which remains a key profit source for banks. The proceeds allow banks to take risks on investments and loans, fostering corporate growth. Katō Katsuhiko, chairman of the Japanese Bankers Association and president of Mizuho Bank, emphasized at a press conference on June 18 that the importance of deposit acquisition in banking business is increasing.

However, the escalating rate competition is placing a heavy burden on regional banks with weaker financial foundations. In areas experiencing population decline, the pressure is even greater. Yagi Minoru, chairman of the Regional Banks Association of Japan and president of Shizuoka Bank, stated at a conference on June 17 that it is crucial for regional banks to retain deposits tied to services where they have strengths, such as salary transfers, which have high stickiness. A senior regional bank executive noted, "We cannot compete solely on interest rates; we need to think about providing added value." The same executive predicted that consolidation among regional banks to better compete for deposits would likely increase in the future.