(Refiles November 11 story to amend name to BofA Securities from Bank of America Securities in paragraph 5)

By Anton Bridge

TOKYO (Reuters) -Japan's three largest banking groups are expected to post healthy second-quarter earnings on Friday, staying on track for record annual profit forecasts for this financial year despite geopolitical uncertainty and a dovish new Japanese prime minister.

A strong showing would add to evidence that Mitsubishi UFJ Financial Group ( MUFG ), Sumitomo Mitsui Financial Group ( SMFG ) and Mizuho Financial Group ( MFG ) have developed robust businesses capable of riding global volatility and that capitalise on growing loan demand from large Japanese companies as the country exits deflation.

However, the banks' share prices already have been among the biggest gainers in a buoyant Japanese stock market in recent years and analysts are searching for another catalyst that would boost profits further.

Since the start of 2024, MUFG's share price has jumped by 90%, SMFG's by 80% and Mizuho's by 105%, compared to just 39% for the Topix index over the same period.

"That the banking sector's fundamentals are good is well understood. For the banks to outperform the Topix from here there needs to be some new factor," BofA Securities Managing Director Shinichiro Nakamura said.

The coming to power of Prime Minister Sanae Takaichi - who has supported looser monetary policy - hit bank shares amid fears she would pressure the Bank of Japan into cutting the pace of rate hikes.

Nevertheless, the BOJ's monetary policy meeting in October indicated the central bank's cautious move toward interest rate normalization, which boosts banks' lending spreads, is set to continue and the impetus for a hike to 0.75% in December or January has risen.

Another fillip beyond then may rely on data that surprises to the upside.

"For instance if wage negotiations next spring show bigger than expected pay hikes, the Bank of Japan may choose to raise interest rates more quickly," Nakamura said.

Outside of monetary policy, the core businesses of the three "megabanks" are strong.

Under years of rock-bottom interest rates, Japan's banks had sought to expand profit opportunities beyond their core domestic lending operations through international expansion and capitalizing on growth areas such as wealth management.

Each of the three "megabanks" reported profit growth in the April-June quarter despite market swings and fears of a global economic slowdown following the announcement of sweeping tariffs by U.S. President Donald Trump. Mizuho even raised its profit forecast.

As such, analysts expect shareholder returns to continue.

J.P. Morgan equity analyst Takahiro Yano expects that MUFG, SMFG and Mizuho will announce share buybacks of 250 billion yen ($1.66 billion), 150 billion yen and 200 billion yen respectively, writing in notes released on September 29 and October 1.

($1 = 150.7800 yen)