Yen’s Depreciation Creates Winners and Losers

The yen’s 20 percent depreciation since the end of 2012 has seen Japanese banks’ balance-sheet superiority against overseas competitors vanish.

Mitsubishi UFJ Financial Group Inc. (8306), Japan’s largest lender, has an adjusted core capital ratio of 9.4 percent, as the size of its overseas risk assets swelled, below the 11.5 percent for Deutsche Bank AG and 10.5 percent for Citigroup Inc., according to Bank of America Merrill Lynch calculations. The prices of subordinated U.S. dollar bonds sold by Sumitomo Mitsui Financial Group Inc. (8316) and Mizuho Financial Group Inc. that count as capital fell to three-month lows last week.

“The financial strength of Japanese banks that people used to talk about has all of a sudden disappeared on a relative basis,” said Nana Otsuki, a banking analyst at Bank of America Corp. “Their capital ratios haven’t expanded at the rate you’d expect given their accumulated retained earnings.”


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