One of the first things I learnt when I started in the fund management industry was that Japanese banks were where value investors went to die. After a huge bull market in the 1980s, that made Japanese banks the most valuable in the world, a long drawn out bear market has ensued. Having been involved in the 2003 to 2006 bull market in Japanese banks, I have a profound respect for their ability to indicate deflationary turns in markets.
The most obvious reason for the recent performance of Japanese banks has been rising JGB yields. The rally in Japanese banks from 2003 to 2006, petered out when JGB yields stopped rising, but that has not happened yet in this case.
Japanese banks are not as cheap as they were. For me, lending is easy, taking in and keeping deposits is hard (looking at you Silicon Valley Bank!). So I tend to look at market cap to deposits as a measure of cheapness. Japanese banks come in at a market cap of 4% of deposits. On that metric Chinese, Korean and French banks are similar at 5%, while the US is now at 12%, down from 20% not long ago. Should I buy all the cheap banks? Well there is one big difference between Japan and everywhere else.