Japan’s Banks Grow Private Credit Exposure, Warn Risks
Japan’s financial system is witnessing the rise of a private credit sector, though domestic banks could face international risks as they engage with this expanding market. The Bank of Japan has flagged concerns that increasing connections between Japanese financial entities and global private credit funds may pose threats to stability.
The central bank’s apprehension stems not from Japan’s sudden entry into the $2 trillion-plus private credit arena, but rather from the growing involvement of Japanese banks and institutional investors at a time when weaknesses in this asset class are under heightened examination.
Regulatory Oversight
Current assessments indicate no systemic risks present, officials have stated. According to reports, Japan’s Financial Services Agency has been examining financial institutions’ lending and investment exposure to private credit, while Finance Minister Satsuki Katayama has said Japan’s exposure is not substantial.
Despite these assurances, Japanese lenders have ramped up financing for international private credit funds to pursue stronger returns, while simultaneously developing similar strategies domestically—potentially creating pathways for foreign financial turbulence to affect Japan.
Industry Evolution
In 2020, Sumitomo Mitsui Financial Group’s banking unit acquired a 4.9% stake in U.S.-based Ares Management Corp., signaling its strategic backing for the American firm’s private credit operations. More recently, reports suggest SMFG and Nippon Life Insurance are negotiating to establish a new private credit vehicle worth at least 500 billion yen, targeting leveraged buyouts, property investments, and mezzanine financing.
Nakajima pointed out that Japan may well have less need for private credit than the U.S. or Europe because its banks remain deeply embedded in corporate finance and continue to provide relatively inexpensive funding.
Nakajima expects private credit to complement rather than displace traditional lenders, particularly as mergers & acquisitions in Japan become more complex and larger: Japanese M&A involving domestic companies reached a record 53 trillion yen in 2025, according to LSEG data cited by Reuters.
International firms like Apollo Global Management, Blackstone, and KKR are building private-credit capabilities in Tokyo, although industry executives expect adoption to take years rather than months. But the domestic opportunity should not obscure the systemic risk concern: private credit globally has grown rapidly while remaining relatively opaque and illiquid.
