A bet by investors that yoshihide suga, japans new prime minister, was poised to precipitate a wave of consolidation across the countrys shattered regional banking sector has begun to sour less than a month since he took power.

The steep gains and sudden reversals in the shares of a dozen obscure, poorly performing regional banks in tochigi, akita, aomori and chiba prefectures have prompted analysts to warn that some traders may have deployed a pump and dump strategy to lure domestic retail investors into a fevered consolidation narrative.

The initial frenzy, which drove the stocks of some of japans 70 listed regional lenders between 11 per cent and 28 per cent higher in a single session in early september, followed mr sugas comments before he was formally confirmed as shinzo abes successor.

Japan, mr suga said, had too many regional banks. that observation, when combined with his well-signalled desire to boost the countrys regional economies and a legal change that would remove some anti-monopoly restrictions on regional bank mergers from november, suggested that he had a specific plan.

In the days that followed, other powerful figures hinted that consolidation was in the ether. yasuyoshi oya, the chairman of the regional banks association, described japan as overbanked while kanetsugu mike, the head of the japanese bankers association, said that regional banks should consider mergers.

All of this comes after years of increasingly ominous warnings about the health of japans regional banks, which at the end of last year had more combined assets than the entire italian banking system ($3tn) but whose businesses were described by the outgoing financial services minister in july as shattered.

The businesses have been hit by wafer-thin loan yields, ailing local economies, adverse demographics and their outsized exposure to a real estate lending boom that took japans system-wide real estate loan balance to a record 81tn last year higher than during the 1980s bubble.

Tomoya suzuki, an analyst at moodys, said that it was reasonable for the market to expect that consolidation would accelerate because the greatest pressure was on the regional banks ailing profitability and mergers were a means for cutting costs by, for example, closing overlapping branches in the same prefecture. but he warned against expecting anything immediate.

Mergers take a few years for the banks to discuss and decide on. then they take a few years to achieve integration and merge the systems. all that requires manpower, and it takes time, said mr suzuki.

But, with the shares of banks that soared in early september now down between 11 per cent and 17 per cent from those highs, others are even more sceptical.

One veteran analyst, brian waterhouse of windamee research, described speculation over regional banks consolidating as a hoary old chestnut. it is briefly revived every few years before investors realise that nothing much will happen because simply allowing regional banks to merge will not solve their lack of business opportunities and over-reliance on interest-rate sensitive income.

Hideyasu ban, banks analyst at jefferies, said mr sugas apparent enthusiasm for mergers may produce a few deals but that any wider consolidation drive would not happen without much clearer incentives from the government to convince larger regional lenders to absorb the smaller ones.

In a note on smartkarma that focused on the eye-catching surge in the bank of toyama, mr waterhouse said that the sudden rise had less to do with mr sugas comments on overbanking in japan and more to do with stock cornering by a group or groups of domestic speculators.

This has all the signs of a classic domestic ramp, designed to quickly push up the share price of a target stock and then offload the accumulated shares for a quick profit close to the top of the price range on to unsuspecting punters drawn by the action, he said.