Aozora Bank was in a bind in its home market.

The Tokyo-based firm was tiny compared with the megabanks that dominate the nation’s financial industry and lacked the well-defined customer base of regional lenders. So about 10 years ago, it decided to expand aggressively overseas, to the point where nearly a third of its lending was outside Japan.

That strategy blew up in spectacular fashion this week, with pain inflicted from bad loans in the U.S. commercial real estate market, where valuations have been hammered by rising borrowing costs and lower demand as more people work from home.