$63,000,000,000 in US Treasuries and European Bonds To Be Liquidated As Unrealized Losses Hammer Major Bank in Japan

A banking giant in Japan has announced a plan to liquidate $63 billion in US and European treasuries in an attempt to mitigate a massive amount of unrealized losses on its balance sheet.

Japan’s Norinchukin Bank, which has $681.6 billion in total assets, plans to complete the sell-off of sovereign bonds by March of next year, reports Nikkei Asia.

The sales will bring the bank’s net loss for the current fiscal year to 1.5 trillion yen, which is triple the bank’s previous estimate.

“[The bank’s CEO Kazuto Oku] said the bank ‘acknowledged the need to drastically change its management’ to reduce unrealized losses on its bonds, which totaled roughly 2.2 trillion yen as of the end of March.

Oku explained the bank’s intention to shift its investments, saying, ‘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 is the biggest foreign holder of U.S. Treasury securities, with the nation’s banks, pension funds and other institutions holding $1.87 trillion as of March 2024.

A few weeks ago, Japan’s Ministry of Finance said it stepped in to prop up the yen after it plunged to a 34-year-low against the US dollar.

Macro strategist Shekhar Hari Kumar tells Reuters that he doubts Japan will create much sell-side pressure on U.S. Treasuries – unless the country’s currency struggles get significantly worse.

“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.”

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