Japan’s Evolving Financial Landscape: How Hokuhoku Financial Group Is Positioning for Growth

Thank you very much for speaking with us today. To begin, I would like to discuss the current situation in Japan regarding interest rates. For many years, Japan maintained negative interest rates as a policy measure, fighting against deflation and seeking to support economic growth.

However, in January 2025, Japan took a historic step by moving back into what we might call “a world of interest,” introducing a positive policy rate of 0.5% — the first time in years that the rate has been above zero. This clearly has significant implications for regional banks and for the financial sector more broadly, affecting deposit rates, lending, and asset-liability management.

Could you tell us what impact this new environment is having on Hokuhoku Financial Group and your services?

Yes, thank you. As you rightly pointed out, Japan has for many years been one of the few countries in the world to maintain negative interest rates at the policy level. The recent shift back into positive territory — what you call “a world of interest” — is therefore quite a turning point.

If we look internationally, in leading economies where growth is supported by higher wages, moderate inflation, and stronger consumption, a gradual rise in interest rates is inevitable in order to sustain a healthy economic cycle. In Japan too, with deflation finally behind us, I believe we are now seeing the first tangible signs of a more positive cycle emerging.

This does not only affect regional banks, but the entire financial industry in Japan. From a business perspective, the return to positive interest rates will influence deposits, lending operations, and portfolio management. Profitability, in turn, is likely to expand. Typically, as long-term interest rates rise, lending rates also increase, which encourages more active lending rather than passive financing. For regional banks such as ours, this is a favorable development.

I should also add that rising rates create new opportunities on the securities side as well, as portfolios are rebalanced and new asset strategies take shape. That said, there are also challenges: higher interest rates mean companies and individuals must commit more capital to investment, whether in facilities, equipment, or consumption. We are already seeing rising prices in major city centers — not only in real estate, but also in construction and related sectors. Regional areas will feel this somewhat later, but the pace of growth will differ between metropolitan and regional economies.

The key question is whether the increase in costs and interest rates can be matched by sustainable wage growth, and whether businesses will find sufficient opportunity to invest under these conditions. For banks, another issue is the potential for unrealized gains and losses on securities portfolios, depending on how markets move. And, of course, competition among banks to attract deposits will intensify in this new environment.

So, while there are clearly positive aspects to higher rates, they also bring new dynamics and risks that must be carefully managed.

Thank you. Another related dimension is the role of Japan in attracting global capital. With the weaker yen and Japan’s relative stability compared to other Asian economies, many analysts have described Japan as currently the most attractive country in Asia for foreign investors.

Indeed, by the end of 2023, we saw record-breaking inflows of over 50 trillion yen in foreign direct investment. Regional banks, including yours, have been playing a role in supporting these inflows — for example, Hokkaido Bank has launched its STEP program to assist foreign companies investing in Hokkaido.

Could you explain your role in facilitating foreign investment into Japan?

Yes, certainly. Let me begin by clarifying: what we are creating in Hokkaido is not a hub in the traditional sense of importing materials from overseas, but rather a financial hub — a focal point where manufacturing, next-generation industries, and major infrastructure projects converge.

Hokkaido Prefecture and Sapporo City have together established a special financial zone through a public–private partnership, and we are actively involved in this initiative. The national government, too, is strongly supporting industries such as semiconductors, and we see Hokkaido playing a key role.

But there are also areas where Japan is lacking resources — data centers, storage batteries, offshore wind power, and electricity transmission networks, to name a few. These are precisely the kinds of sectors where foreign investment will be essential, and where public–private partnerships can attract global capital.

These projects are long-term in nature. For instance, semiconductor investments will likely unfold in multiple phases, while building new electricity transmission infrastructure may extend even beyond 2040. In such cases, patient, long-term capital is indispensable.

From our perspective, Hokkaido can serve as an international hub — financially, industrially, and even in communications infrastructure — with potential to connect not only within Japan but also with North America. To realize this vision, we must actively reach out to global investors, build partnerships, and position Hokkaido as an attractive location for capital, technology, and innovation.

That is very interesting. Building on this, your group also has offices not only across Asia, including in China, but also in one of the world’s leading financial centers — New York.

How do these overseas offices function as bridges between foreign capital and Japanese investments? And how do they help Japanese companies seeking partners abroad?

Historically, this international presence has been a defining feature of our group. Our overseas activities stretch back nearly fifty years, long before globalization became the norm. Initially, much of this activity was linked to infrastructure development and industrial projects in Japan, but over time it has evolved into broader channels of exchange.

Today, our overseas offices act as platforms to connect local investors and institutions with opportunities in Japan, often in collaboration with local financial institutions. At the same time, they allow Japanese companies — particularly small and medium-sized enterprises (SMEs) — to explore partnerships and markets abroad. In short, they strengthen two-way flows of investment, knowledge, and opportunity.

Asahi Funakawa “Spring Quartet” (Toyama Prefecture)

Let me turn now to technology. Your group has been proactive in digital transformation, including a collaboration with Fujitsu on document management and new digital services. How do you view the role of technology in enhancing both your internal capabilities and the services you provide to customers?

Technology is absolutely central to our strategy. For many years now, we have worked to digitize as many of our traditionally face-to-face services as possible, offering them through user-friendly applications. Our app has now surpassed one million registered users, with nearly 80% active usage — a figure we are proud of.

But we are far from finished. We aim to continuously expand functionality, integrating generative AI, exploring opportunities with Web3, and enhancing the user experience (UI/UX). At the same time, we recognize that technology is only as strong as the people who design and implement it. Therefore, we are investing heavily in training and hiring talent with the skills needed to lead this transformation.

This is especially critical in Japan’s aging society and in regional areas, where digital services can significantly improve convenience and accessibility. For us, digitalization is not simply a cost-saving measure — it is an essential means of delivering better financial services and improving quality of life for our customers.

You mentioned talent. Japan faces a demographic challenge: a shrinking workforce, more difficult recruitment, and growing demand for specialized expertise in areas such as DX (digital transformation), GX (green transformation), and M&A advisory.

What is your strategy for securing the right talent? Are you considering hiring more foreign employees, or acquiring firms with the right expertise?

Securing and nurturing talent is indeed one of our top priorities. At present, we believe we have a competitive edge in recruiting both new graduates and mid-career professionals, but our real focus is on developing them within the company.

We are increasing investment in training, with the goal of expanding our pool of professional and specialist talent — for example, in areas such as GX consulting and DX consulting. Over the next three years, we plan to increase our number of expert staff from 2,000 to 2,300, and we will continue to grow from there.

As for foreign talent, if opportunities arise — whether in Japan or at our overseas offices — we are open to hiring. And regarding M&A, we are not opposed at all. If there is strong synergy, alignment in management direction, and real potential for growth, acquisitions can be a valuable way to expand our capabilities.

Sapporo TV Tower viewed from Odori Park (Hokkaido)

Hokuhoku Financial Group has long been recognized as one of Japan’s leading regional banking groups, with deep roots in Toyama and Hokkaido. Could you share the essential role you play in supporting local communities and companies in these regions?

Our history in the Hokuriku region goes back 150 years, to the early Meiji era, when we were established as a national bank serving the three prefectures of Hokuriku. We have grown together with the region’s industries ever since.

In Hokkaido, our presence is slightly younger but equally important. After World War II, Hokkaido Bank was established to support the financing needs of SMEs during the island’s development, particularly as Sapporo expanded. So in both Hokuriku and Hokkaido, our identity has been deeply tied to supporting local economies.

At the same time, we have also maintained a strong presence in Japan’s metropolitan centers — Tokyo, Nagoya, and Osaka — for more than 145 years. Our role has been to connect these major cities with the regional economies, facilitating flows of capital, knowledge, and people in both directions.

We often describe this as a “triangle” — Hokuriku, Hokkaido, and the metropolitan centers. Our three headquarters — in Toyama, Sapporo, and Tokyo — embody this approach. We intend to further deepen this triangular cooperation, strengthening the sharing of information, promoting consultation, and ultimately revitalizing both local communities and broader economic networks through strong public–private partnerships.

That is a remarkable legacy. Let me close with a more personal question for our global readers. If you had to define Hokuhoku Financial Group in a single sentence for international investors and executives, how would you describe your company? And looking ahead, what are your goals for the next five years?

That is an excellent way to conclude. In a single phrase, our mission is: “Creating a bright future beyond regions.”

We are, of course, a regional bank at our core. But what distinguishes us is that we also maintain a global network. By combining two of Japan’s most historic and largest regional banks, we have built a financial group that is not limited by geography — we go beyond regions to deliver financial services. That, I believe, is our unique identity both within Japan and internationally.

As for the next five years, we have already announced a mid-term management plan that is part of a broader 10-year vision. My goal is that, within five years, we will be significantly closer to achieving that vision — not only in terms of financial performance, but also in terms of the impact we create.

Through our work across regions and globally, we aim to revitalize economies, support both financial and non-financial growth, and foster a “win–win” relationship between communities and our group. In short, our mission is to energize growth at every level — local, national, and international.

For more information, visit their website at: https://www.hokuhoku-fg.co.jp/english/

To read more about Hokuhoku Financial Group, check out this article about them.