The public is losing trust in Japan's financial institutions, but why?

Public trust in Japan’s largest financial institutions is faltering after recent scandals involving employees accused of criminal behaviour that jeopardised customers’ wealth and safety.

Major firms including MUFG Bank and Nomura Securities are scrambling to repair their reputations as the government pushes for a shift from savings to investments to prepare citizens for retirement.

MUFG bank theft 

Japan’s largest bank, MUFG Bank, a unit of Mitsubishi UFJ Financial Group, apologised on December 16 following allegations that a former employee stole billions of yen in cash and valuables from customers’ safe deposit boxes.

The employee, tasked with managing safes and spare keys at two branches in Tokyo, allegedly used her position to carry out the thefts between April 2020 and November 2023, affecting about 60 customers, Nikkei reported.

MUFG Bank President Junichi Hanzawa said the incident “has undermined the customers’ trust and confidence, and shaken the very foundation of our banking business.”

In response, the bank has centralised the storage of spare keys at its headquarters, tightened internal procedures, and enhanced employee monitoring.

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Shocking robbery at Nomura Securities

Nomura Securities faced public outrage after a former employee was charged in November with robbery and attempted murder. Authorities said the employee visited a client’s home in Hiroshima in July, drugged a woman, stole 17.87 million yen ($113,515) in cash, and set the house on fire.

Nomura announced a series of countermeasures, including stricter supervision of employees, mandatory ethics training, and enhanced compliance protocols. Employees in direct contact with clients must now take annual consolidated leave, during which all client interactions are prohibited.

“We take this matter very seriously. An incident like this must never happen at a financial institution entrusted with looking after its clients’ assets,” Nomura said in a December 3 press release. Ten executives, including President Kentaro Okuda, will return part of their salaries in response to the scandal.

Broader challenges for Japan’s financial sector

The recent incidents at MUFG Bank and Nomura Securities fit into a broader pattern of misconductr. Allegations of insider trading have surfaced involving employees at the Financial Services Agency, Tokyo Stock Exchange, and Sumitomo Mitsui Trust Bank.

“The distortion of the old economy is beginning to reveal itself,” Nikkei quoted Chisa Kobayashi, an equity strategist at UBS SuMi Trust Wealth Management, as saying. She noted that outdated corporate practices and slow digitisation contributed to the lack of transparency in Japan’s financial sector.

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The scandals come as Japan’s government promotes the Nippon Individual Savings Account (NISA) program, aimed at encouraging citizens to invest rather than rely on low-yielding savings accounts.

Japan’s low-wage, low-interest environment has left many citizens struggling to save for retirement, with estimates suggesting individuals need more than 30 million yen in addition to pensions. Mutual fund subscriptions under the program tripled in the first half of 2023, reaching 6 trillion yen.