A major bank in Japan has revealed a strategy to sell off $63 billion worth of US and European treasuries in an effort to offset substantial unrealized losses on its financial statement.
Norinchukin Bank of Japan, which holds a total of $681.6 billion in assets, intends to complete the sale of government bonds by March of next year, according to a report by Nikkei Asia.
The sales will result in a net loss of 1.5 trillion yen for the current fiscal year, tripling the bank’s previous estimation.
“The bank’s CEO Kazuto Oku acknowledged the necessity for a significant change in management to reduce the unrealized losses on its bonds, which amounted to around 2.2 trillion yen as of the end of March,” said Oku, explaining the bank’s plan to shift its investments. “We will reduce sovereign interest rate risk and diversify into assets that carry corporate and individual credit risk.”
As of March, the banking giant had a total of 23 trillion yen, equivalent to $144 billion, in foreign bonds on its financial statement.
Japan holds the largest amount of U.S. Treasury securities among foreign nations, with the country’s banks, pension funds, and other institutions collectively holding $1.87 trillion as of March 2024.
A few weeks ago, Japan’s Ministry of Finance intervened to support the yen after it plummeted to a 34-year low against the US dollar.
Macro strategist Shekhar Hari Kumar told Reuters that he doubts Japan will exert significant selling pressure on U.S. Treasuries unless the country’s currency woes worsen substantially.
“Japanese selling (of dollars) is not going to create big pressure in the Treasury market now. But in the unlikely event that the Ministry of Finance engages in a prolonged battle with the FX markets, we might anticipate some knock-on effects on Treasury market yields, especially in the 2-5 year segment, with the potential for spillovers to the rest of the curve.”
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