Is it true that 'when interest rates rise, banks make money'? Bank stocks were solid in the morning session

Hello everyone!

Suddenly, have you ever heard the saying, ‘when interest rates rise, banks make money’?

Truth be told, I only had a vague understanding that ‘it seems to be the case,’ and if asked to explain it properly, I wouldn’t have been confident! Haha.

In this morning’s session, while the Nikkei Stock Average saw a slight gain, the banking sector was bought solidly. Let’s look at the ‘why’ behind that together, starting with the mechanics!

(→ Due to system circumstances, the publication of the article summarizing the morning session’s figures is slightly delayed today.)

Check the morning session figures!

Instead of relying on intuition, let’s look at the numbers first!

The Nikkei Stock Average closed the morning session at

70,082 yen (up 135 yen from the previous day, +0.19%)

The TOPIX-linked ETF (1306) was also up 0.34%, meaning the morning session saw a slight overall rise.

Looking at the 5-minute chart, it rose from the opening and hit a morning high of 70,417 yen around 10:10 AM. However, it narrowed its gains after that, ending the morning session just barely holding onto the 70,000 yen level.
(→ Since it jumped over 1,600 yen all at once yesterday, perhaps it’s just taking a breather?)

Which stocks rose and fell?

Among the 50 large-cap stocks tracked in this article,

• Gainers: Fujikura (+3.04%), Tokio Marine HD (+2.32%), Nippon Steel (+1.89%), Advantest (+1.71%)

• Losers: SoftBank Group (-2.66%), Mitsubishi Heavy Industries (-2.12%), Tokyo Electron (-0.78%)

Semiconductor stocks, which were the stars yesterday, were mixed, with Advantest rising while Tokyo Electron fell.

How did it look by sector?

Looking at the TOPIX-17 sector ETFs, the top performers were

The laggards were Machinery (-0.57%), Foods (-0.46%), and Electric Power & Gas (-0.29%).

Why were bank stocks bought?

To be honest, I could not confirm any specific news that served as the ‘catalyst’ for the rise in bank stocks during this morning’s session.

However, the factors being considered in the background can be confirmed through numbers.

• The Bank of Japan raised the policy interest rate to 1.25% at its September meeting

• The probability of an additional rate hike at the October meeting is seen as nearly 30%, and over 90% by December

• In the U.S. as well, the 10-year Treasury yield is at the 5.3% level, a 24-year high

In other words, the view that ‘interest rates are likely to remain high both in Japan and overseas’ is supporting bank stocks.

The mechanism of ‘when interest rates rise, banks make money’

1. 📊 The pillar of bank profits is the ‘interest margin’

Banks use the money collected from deposits for housing loans and lending to companies. The difference between the lending interest rate and the deposit interest rate is the ‘interest margin,’ which is a major source of revenue for banks.

2. 💡 Lending rates rise first

In a phase where interest rates are rising, lending rates tend to rise relatively quickly, while deposit rates often rise only slowly. During that time, the interest margin widens, making it easier for profits to increase.

3. 🧠 However, it’s not all good news

On the other hand, banks also hold many bonds. When interest rates rise, bond prices fall, so there is also a headwind in the form of valuation losses. If the economy worsens, ‘loan defaults,’ where lent money is not returned, also increase.

(→ It is an important point that ‘rising interest rates does not mean banks will definitely make money’)

Thought log: When you understand the mechanism, the news starts to ‘connect’

Honestly, until now, even when I saw news that ‘bank stocks rose,’ I would just think, ‘Oh, I see,’ and leave it at that. lol

But once you understand the mechanism of interest margins, the ‘BOJ rate hike,’ ‘U.S. interest rates,’ and ‘bank stocks’ start to look connected in a single line. At the same time, if you don’t also consider the risks of bond valuation losses and the economy, it seems easy to believe only one side of the story…

(→ It is often said that you should be skeptical of ‘data that only shows benefits’ in research, and the same applies to investing.)

I am an index investor, so I don’t pick individual bank stocks, but I felt I should take a look at how much bank stock is included in my own investment trusts.

Summary

• The Nikkei Stock Average closed the morning session at 70,082 yen (+135 yen). After hitting a high of 70,417 yen, it narrowed its gains.

• By sector, steel/non-ferrous metals, banking, and automobiles are at the top. Machinery and food are weaker.

• Behind the bank stocks are the Bank of Japan’s interest rate hikes and the view that interest rates in Japan and the U.S. will remain high.

• While rising interest rates tend to widen banks’ interest margins, there are also headwinds such as valuation losses on bonds and loan defaults.

When you look at a piece of news through the lens of ‘mechanisms,’ it starts to connect with other news. Let’s continue to look at the numbers together in the afternoon session!

✅ To-do list you can start today

• Check the monthly report of your investment trust to see how much ‘banking’ is included.

• Add the date of the Bank of Japan’s next Monetary Policy Meeting to your calendar.

• Try explaining the term ‘interest margin’ in your own words.

• When you see news about bank stocks, check both ‘interest rates’ and ‘the economy’ as a set.

References

• Nikkei: ‘BOJ to raise rates to 1.25%, accelerating pace to prevent inflation overshoot’ https://www.nikkei.com/article/DGXZQOUB16ATV0W6A910C2000000/

• Nikkei: ‘Expectations for BOJ rate hike within the year rise again, 30% probability for October’ https://www.nikkei.com/article/DGXZQOFL190FNTZ10C26A9000000/

• CNBC: ‘Nasdaq closes at fresh record as tech shares rise and traders look past higher yields’ https://www.cnbc.com/2026/10/04/stock-market-today-live-updates.html

• Stock price/sector ETF data: Yahoo Finance (Retrieved via yfinance on 2026/10/06 at 12:08)

*This article is for informational purposes only and does not recommend the buying or selling of specific stocks or financial products. The figures mentioned are based on data at the time of writing and do not guarantee future results. Investing involves risk, and the principal is not guaranteed. Please make investment decisions at your own responsibility.