The outsize drop in bank shares during the recent rout in Japanese stocks has the potential to bring an off-the-scale recovery.
In the first three days of August, the Topix Banks index lost 26.5%, more than the 20.3% fall in the broader Topix index. Both saw their biggest three-day declines in at least four decades.
The underperformance of Japanese banks is somewhat counterintuitive given that one of the triggers for the latest selloff was a fear that the Bank of Japan (BOJ) may continue to raise interest rates after it hiked on July 31. Higher rates are a boon for bank profits.
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