Striking Blow to the US and Europe A Japanese Bank Liquidates 63 Billion Worth of Bonds

Japan’s major banking institution, Norinchukin Bank, has announced a strategy to offset its massive unrealized losses on US and European government bonds, with a liquidation value of $6.3 billion. According to Nikkei Asia, the bank’s total assets amount to $68.16 billion, with a target to complete the sale of government bonds by January next year. The expected sale is projected to result in a net loss of ¥1.5 trillion for this fiscal year, three times the bank’s previous forecast. Norinchukin Bank’s CEO, Kazuto Oku, emphasized the need for significant management changes to reduce unrealized losses, which amounted to approximately ¥10 trillion as of the end of February. Oku outlined the bank’s strategy shift in investments, stating, “We intend to reduce (the nation’s) interest rate risk and diversify assets, including corporate and individual credit risks.” As of February 23, the bank’s total foreign bond holdings on its balance sheet amounted to ¥144 trillion, equivalent to $1.4 billion. Japan is the largest foreign holder of US government bonds, with the country’s banks, pension funds, and other institutions collectively holding $1.87 trillion in US treasuries as of January 2024. Macro strategist Schalk Louw-Karl Kummel expressed skepticism regarding Japan’s potential impact on US treasuries, stating that unless the country’s currency challenge significantly worsens, Japan’s sell-off is unlikely to exert significant pressure on the stock market. Kummel added, “If there’s a prolonged confrontation between the government bond and forex markets, we expect a chain reaction on the yields of government bonds, especially in the 2-5 year maturity range, which could impact the broader yield curve.”