A sharp decline in bank stocks globally was highlighted by a significant plunge in Japanese bank shares, leading to their most severe weekly loss in over 40 years. This happened amidst a broader trend of fear about a potential global recession. Banks are being negatively impacted worldwide due to the United States shifting away from its long-standing free trade policies and imposing high tariffs under President Donald Trump.

The recent 20% or more drop in Japan’s major bank shares marks the most substantial decline since the 2008 financial crisis, indicating the unsettling effects of Trump's trade disputes. European bank shares also faced continued losses, with a basket of banks in the region falling by 6.5% at the beginning of the trading day to their lowest level since early February, following a 5.5% decrease the previous day.

This trend extended to the United States, where significant drops were seen in banking stocks, including Citigroup falling by over 12% and Bank of America by 11%. The broader market concerns have led to a flight to safer investment options like bonds, causing Japanese government bond futures to almost reach the threshold for a trading halt. This move drove yields lower, with the largest weekly drop since 1993.

Anticipation of a Bank of Japan interest rate increase has diminished significantly, causing investors to rethink expectations and causing turmoil in the market. Concerns have also arisen about the difficulty Japan may face in raising rates, especially given the lowering of U.S. 10-year yields and reduced expectations of rate cuts.

The repercussions were notable for Japan's major banks, with Mitsubishi UFJ Financial Group experiencing an 8.5% decline on Friday and a weekly loss of 20% - the most significant since 2003. Mizuho Financial Group and Sumitomo Mitsui Financial Group also suffered substantial drops, resulting in a collective market value loss of more than 10 trillion yen ($69 billion) for the week.