Local Japanese banks will have a good Q3, but Japan’s AI boom will hit a financing hump.

The Bank of Japan raised its policy rate to a 31-year high of 1.25%, citing AI-related investment as an inflation risk. Another rate increase to 1.5% expected by December. Record high rates are lifting lending margins at Mizuho, MUFG and SMFG. Japan’s push to attract AI investment is also raising financing costs for the foreign companies building that infrastructure, while shifting more of the gains from the investment boom towards domestic banks. SMFG looks to benefit the most with most of SMFG’s lending book concentrated in domestic loans — but Mizuho and MUFG also look to have a strong quarter, while TSMC and hyperscalers such as Microsoft, Amazon and Google building AI data centers in Japan face rising financing costs.