Rising interest rates and attractive valuations are driving merger activity within Japan's $3 trillion regional banking sector, Bloomberg News reported on Tuesday, citing analysts.

A series of recent deals and attractive valuations are leading investors to anticipate further consolidation among Japan's 73 listed regional banks, said the news wire.

These lenders face heightened competition for low-cost deposits in an environment of rising interest rates, said the publication.

They are also contending with the growing challenge posed by new competitors, such as online banks, the report added.

(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)