Unrealized Losses Force Major Sell-Off
Norinchukin Bank, a major Japanese bank, has announced plans to sell off $63 billion worth of US and European government bonds. This move aims to reduce massive unrealized losses on the bank’s balance sheet.
The bank’s total assets amount to $681.6 billion. By March 2024, it expects to complete the bond sell-off, resulting in a net loss of 1.5 trillion yen for the current fiscal year. This loss is three times the bank’s previous estimate.
Shifting Investment Strategy
Norinchukin Bank’s CEO, Kazuto Oku, acknowledged the need for a drastic change in management to mitigate bond losses. As of March, the bank held approximately 2.2 trillion yen in unrealized losses on bonds.
Oku stated that the bank will reduce interest rate risk and diversify into assets that carry corporate and individual credit risk.
Japan’s Role in US Treasuries
Japan is the largest foreign holder of US Treasury securities, with institutions holding $1.87 trillion as of March 2024. However, macro strategist Shekhar Hari Kumar doubts that Japan’s bond sales will significantly impact US Treasury yields.
He believes that Japanese selling is unlikely to create substantial pressure on the Treasury market unless Japan’s currency struggles worsen.
