JAPAN Law and Practice Contributed by: Hiroki Aoyama, Yuki Matsuda and Shuhei Takaishi, Mori Hamada
Mori Hamada & Matsumoto 16th Floor Marunouchi Park Building 2-6-1 Marunouchi Chiyoda-ku Tokyo 100-8222 Japan
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1. Loan Market Overview 1.1 The Regulatory Environment and Economic Background
Generally, given the substantial uncertainty of the situ- ation these areas, Japanese banks are paying atten- tion to the potential negative impact on the global economy caused by sanctions and rising resource and energy prices. 1.3 The High-Yield Market Given the relatively wide availability of senior facilities provided by banks, the role played by high-yield facili- ties has been somewhat limited. However, high-yield and mezzanine debt remain popular for borrowers seeking to stretch debt capacity in structured trans- actions such as leveraged buyouts and real estate acquisitions. Mezzanine debt is typically provided in the form of subordinated loans or preferred shares. 1.4 Alternative Credit Providers Banks and other conventional financial institutions continue to play a central role in the Japanese loan market, with the most sizeable being the three “mega banks” (Mizuho, MUFG and SMBC), which, together with Resona and Resona Saitama, accounted for 39.6% of the outstanding loan balance as at the end of 2024. Other players include non-bank money lend- ers, private investment funds and government-related financial institutions. 1.5 Banking and Finance Techniques Mezzanine financing, typically in the form of subordi- nated loans or preferred shares, is sometimes used by borrowers seeking to stretch debt capacity in struc-
On 24 January 2025, the Bank of Japan increased its uncollateralised overnight call rate to 0.5 percent, and will continue to raise it in response to developments in economic activity, prices and financial conditions going forward. Competitive market dynamics also put downward pressure on interest rates and lending fees. Borrow- ers are therefore benefiting from easy access to debt financing. Japanese companies have been increas- ing capital expenditure for several years. M&A, infra- structure projects and the real estate market have also been active. The value of outstanding loans held by Japanese banks exceeded JPY605 trillion at the end of 2024, compared to JPY580 trillion at the end of 2023. 1.2 Impact of Global Conflicts The impact of global conflicts on the Japanese loan market has been limited thus far. The amount of outstanding loans held by Japanese financial institutions with borrowers in areas under global conflict is quite limited. However, loans to such borrowers with a long maturity may be substantially affected by a decline in borrower cash flow due to economic sanctions or suspension of trading with its international business partners.
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