A Japanese banking powerhouse recently revealed its plan to offload $63 billion in US and European treasuries in an effort to offset a significant amount of unrealized losses on its financial statement.
The Norinchukin Bank of Japan, with total assets of $681.6 billion, 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 the bank’s net loss for the current fiscal year reaching 1.5 trillion yen, which is three times the bank’s previous estimate.
The bank’s CEO Kazuto Oku acknowledged the necessity of making significant changes in management to reduce unrealized losses on its bonds, which amounted to approximately 2.2 trillion yen as of the end of March. Oku elaborated on the bank’s plan to shift its investments, stating, “We will reduce [sovereign] interest rate risk and diversify into assets that take on corporate and individual credit risk.”
As of March, the banking giant had a total of 23 trillion yen, or $144 billion, in foreign bonds on its balance sheet.
Japan holds the distinction of being the largest foreign holder of U.S. Treasury securities, with the nation’s banks, pension funds, and other institutions possessing $1.87 trillion as of March 2024.
Just 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 informed Reuters that he doubts Japan will exert significant sell-side pressure on U.S. Treasuries unless the country’s currency woes worsen significantly. He stated, “Japanese selling (of dollars) is not going to create big pressure in the Treasury market now. But in the unlikely event that MoF gets into a protracted fight with FX markets, we might expect some knock-on effects on Treasury market yields, especially the 2-5 year segment with the potential of spillovers to the rest of the curve.”