TOKYO, Jan. 14 (Xinhua) -- Japanese banks' excess funds have fallen to a nearly four-year low as loan growth accelerates and deposit inflows slow, leaving lenders with less room to invest in assets such as government bonds, Nikkei Asia reported on Wednesday.

The gap between deposits and loans, a key measure of banks' surplus funds, shrank 3 percent from a year earlier to 329 trillion yen (2.07 trillion U.S. dollars) in December 2025, the lowest level since February 2022, according to a 12-month moving average.

The gap narrows amid an uptrend in lending, as companies make capital investments to deal with labor shortages and pursue mergers and acquisitions, the report said. Average outstanding bank loans rose 4.8 percent year-on-year to 581 trillion yen in December 2025. Lending at major banks increased 5.7 percent, the fastest pace since March 2021, while regional banks posted a 4.1 percent rise.

Deposit growth, however, has lagged. Average deposits edged up just 1.1 percent to 897 trillion yen last month, reflecting Japan's shrinking population and a shift by households toward other investment products rather than traditional bank savings.

Nikkei Asia pointed out that if the gap continues to narrow, banks may be forced to curb investments in securities such as government bonds to continue meeting strong corporate funding demand.

As the Bank of Japan scales back its purchases of Japanese government bonds, private financial institutions are expected to play a larger role in absorbing new issuance. A sustained decline in banks' surplus funds could significantly limit private-sector capacity to purchase government bonds and affect the long-term stability of the bond market, the report added. ■