Selloff Makes Japanese Bank Valuations Attractive Again; SMTH’s Hedges Enhance Its Appeal

Since Aug. 31, share prices of the Japanese banks we cover have fallen by 24% to 29%, making them appear undervalued. Just a week earlier, these banks seemed fairly valued or even overvalued according to our intrinsic value estimates. If the Federal Reserve aggressively cuts US dollar interest rates, it could diminish expectations for future increases in Japanese yen interest rates—despite recent hawkish comments by Bank of Japan Gov. Kazuo Ueda. This shift might prompt a reassessment of Japanese banks' earnings trajectory. We will review our forecasts after meeting with the banks in Tokyo and observing the Fed’s stance in the coming weeks.