Japan’s private credit market grows slowly as global exposure raises risks

Japan’s domestic private credit market remains in its early stages, but the country’s financial institutions are becoming increasingly connected to the global private debt industry, raising concerns about how overseas stresses could affect the Japanese financial system, according to a report by Global Finance.

The Bank of Japan has highlighted the growing links between Japanese banks and institutional investors and global private credit funds as an area worth monitoring. The concern comes as scrutiny of the more than $2tn global private credit market increases.

Japanese regulators have not identified evidence of a systemic problem so far. The Financial Services Agency has been examining financial institutions’ lending and investment exposure to private credit, while Finance Minister Satsuki Katayama has said Japan’s overall exposure remains limited.

Japanese banks, however, have been increasing their financing of overseas private credit managers in pursuit of higher returns, while financial institutions are also exploring opportunities to establish domestic private credit strategies.

Sumitomo Mitsui Financial Group, for example, acquired a 4.9% stake in Ares Management in 2020 as part of a strategic partnership supporting the US alternative asset manager’s private credit business.

SMFG and Nippon Life Insurance were also reported earlier this year to be considering the launch of a private credit fund of at least ¥500 billion to finance leveraged buyouts, real estate transactions and mezzanine investments.

Japan’s private credit industry remains considerably smaller than those of the US and Europe, partly because domestic banks continue to play a central role in corporate financing and generally offer relatively low-cost funding.

Some market observer believe that private credit is more likely to complement traditional bank lending than replace it as the Japanese market develops.

That role could become more important as Japanese M&A grows in scale and complexity. Domestic M&A transactions reached a record JPY53 trillion in 2025, according to LSEG data cited by Reuters, with take-private deals, succession transactions, overseas acquisitions and infrastructure investments creating increasingly varied financing requirements.

Private credit could help fill gaps in leveraged buyouts, mezzanine financing and other transactions where borrowers value faster execution, greater flexibility or longer maturities than conventional bank structures can provide.

Global alternative asset managers are positioning themselves for that potential growth. Apollo Global Management, Blackstone and KKR are among firms building private credit capabilities in Tokyo, although industry executives expect the Japanese market to develop gradually rather than experience a rapid shift away from bank financing.