Since the LDP’s victory in Japan, industries highlighted by Ms. Takaichi as policy “priorities” have outperformed, reflecting investor expectations of supportive government action.

A key question for investors is whether government spending is actually being deployed in line with stated policies — and whether the targeted industries are truly benefiting from those allocations.

To assess this, I now refer to insights from the New Policy Journalists Association.

The New Policy Journalists Association is a policy intelligence group composed of independent, mid-career reporters with deep expertise in national, ministerial, and local government policy. They provide a clear-eyed assessment of how policies are actually implemented and where government capital is truly flowing. Their work helps decode bureaucratic complexity and offers a practical view of whether — and how — public funds are being deployed.

I am sharing their perspective to better inform you about where “actual” government money may begin flowing, and which industries could experience growth supported by these funds.

Today’s topic is the consolidation of regional banks.

Japan has an excessive number of regional banks relative to its rapidly declining population. While consolidation has long been viewed as necessary, the government is now actively and more forcefully promoting integration among these institutions.

Below is a summary of the report by the New Policy Journalists Association.

Government to Fund Core System Integration to Accelerate Regional Bank Consolidation

The Japanese government is moving to accelerate consolidation among regional banks.

Under the “Regional Financial Strengthening Plan” formulated in December 2025, the government will expand financial support for regional banks that merge or integrate — including funding for core system integration. Core banking systems have been a major obstacle to consolidation due to high costs, technical complexity, and contract termination penalties. By directing policy funding at this bottleneck, the government is materially lowering barriers to mergers and system joint operations.

A major change is the significant extension and expansion of the existing subsidy program (effectively a regional bank merger promotion scheme). The application deadline has been extended from March 2026 to March 2031, with larger funding caps:

• Merger subsidy ceiling raised from ¥3 billion to ¥5 billion
• Up to ¥7.5 billion for certain cross-sector mergers
• Subsidy ratio for cooperative financial institutions increased from one-third to one-half

Hiroshima Bank (Hirogin Holdings, 7337) drew attention in 2022. The bank had been jointly operating its core banking system with Fukuoka Financial Group (8354), which uses an IBM-based system. However, that year, Hiroshima Bank announced plans to shift to an NTT Data (NTT, 9432)–based system, which is jointly operated by banks such as Yokohama Bank (Yokohama Financial Group, 7186).

Industry once expected rapid system consolidation after Hirogin, but uptake remains weak. Mid‑contract termination penalties owed to system vendors make joint system migration too costly, slowing adoption.

Now, the program will cover system contract termination penalties — a major hurdle that had discouraged banks from switching vendors or integrating systems. This dramatically reduces the cost of “exiting” existing vendor contracts and facilitates consolidation or system joint operations.

Even without full mergers, smaller financial institutions joining shared core systems can receive up to ¥1.5 billion in support. Central institutions rationalizing cooperative shared systems may receive up to ¥150 billion. Deadlines for system-related applications extend to March 2036, recognizing long development timelines.

By moving to subsidize even core‑system cancellation penalties, the government has fundamentally reshaped the environment for regional‑bank consolidation. System integration itself serves as a stepping‑stone toward future mergers, making this policy shift so consequential. While vendors face near-term customer churn risk, over time, contracts may concentrate among stronger major vendors.

Beyond consolidation, the plan pressures regional banks to expand their role in supporting local economies — not only through lending, but also via M&A advisory, business succession, DX, AI adoption, talent placement, and equity financing. However, many regional banks already face labor shortages, making these expanded expectations demanding.

The tone of the plan carries an implicit message: if a regional bank lacks the capacity to support local SMEs meaningfully, it may not justify remaining independent — and should consider consolidation.

The plan is expected to be incorporated into the broader growth strategy to be formulated in summer 2026.

(Soruce: Toyo Keizai)