Japan Banks Target Record 5.7 Trillion Profit Despite Iran War Risks

Mitsubishi UFJ Financial Group and Mizuho Financial Group are heading into another year of expected record profit, but the setup is no longer just about higher rates and stronger loan profitability. MUFG now expects net income to rise about 11% to a record 2.7 trillion in the year ending March 2027, while Mizuho forecasts profit to increase 4% to 1.3 trillion, also an all-time high. The two lenders are joining Sumitomo Mitsui Financial Group (SMFG) in calling for fresh earnings highs, as rising interest rates continue to support loan profitability across Japan's biggest banks. Still, the pace of growth could be slowing sharply after the prior fiscal year, when MUFG's net income climbed 30% to 2.43 trillion and Mizuho's profit rose 41% to 1.25 trillion.The bigger concern for investors is that the Iran war is now sitting directly inside the risk outlook. Japan's dependence on oil and gas imports leaves the economy exposed to energy disruptions, and that could possibly pressure credit quality and loan demand if the conflict keeps driving costs higher. MUFG booked 25 billion in provisions for Middle East-related risks last fiscal year, while Mizuho set aside 54.7 billion in forward-looking reserves tied to uncertainty over the conflict. Sumitomo Mitsui also recorded 65 billion in loan-loss reserves tied to the impact of the Iran war, even as it forecast annual profit to climb more than 7% to 1.7 trillion.MUFG CEO Junichi Hanzawa said uncertainty remains elevated this year and that the bank must handle the situation with a high level of alert. He said MUFG does not currently need to make further provisions, but warned that if the conflict drags on throughout the year, the earnings impact could reach the tens of billions of yen. Mizuho CEO Masahiro Kihara said his bank's provisions were booked last year and that the lender will go full throttle this year. Both MUFG and Mizuho plan to repurchase as much as 100 billion of shares, below Sumitomo Mitsui's planned 180 billion buyback, leaving investors with a more nuanced story: record profit targets, shareholder returns, and stronger rate-driven lending economics, but also slower growth and conflict-linked risks that could still weigh on Japan's banks.