Japan Agricultural and Forestry Central Bank bets on U.S. Treasuries with a huge loss of $12.6 billion, warning to invest cautiously in Japanese government bonds
The Japan Agricultural and Forestry Central Bank reported a loss of $12.6 billion from investing in U.S. Treasury bonds and stated that it will adopt an "extremely cautious" attitude towards purchasing Japanese government bonds. The bank expects further interest rate hikes in Japan, and amid concerns over global fiscal health, the Agricultural and Forestry Central Bank has sold off a large amount of low-yield assets. Although the report indicates that unrealized losses have narrowed, the massive losses serve as a warning to investors that traditional safe-haven assets also carry risks under macroeconomic pressure. The newly appointed CEO is working on rebuilding the securities investment portfolio
According to the Zhitong Finance APP, Japan's Norinchukin Bank, which suffered huge losses from investing in U.S. Treasury bonds, stated on Thursday that it will adopt an "extremely cautious" attitude towards purchasing Japanese government bonds.
The company's Chief Financial Officer Masaki Nagano said at a briefing that Japan is expected to raise interest rates further. This statement comes as Japan's $78 trillion government bond market experiences severe turbulence this week.
Norinchukin Bank's stance aligns with other investors who are closely monitoring the fiscal health of countries from the U.S. to Japan. As U.S. lawmakers debate tax reduction proposals, U.S. Treasury yields continue to soar; meanwhile, Japanese long-term bonds are being sold off as the central bank reduces its holdings amid rising inflation.
Briefing documents show that Norinchukin Bank has sold off low-yield assets worth 17.3 trillion yen, including government bonds from Europe and the U.S. and investment-grade corporate bonds. As of the end of March, the bank's unrealized bond losses amounted to 1.24 trillion yen, narrowing from 2.2 trillion yen in the same period last year.
Due to large-scale sell-offs of U.S. Treasury bonds and other overseas bonds, this agricultural financial institution reported a loss of 1.8 trillion yen (approximately $12.6 billion) for the fiscal year ending in March, compared to a profit of 63.6 billion yen in the same period last year. According to the briefing documents, Norinchukin Bank maintains its previous forecast, expecting a profit of 30 billion to 70 billion yen for the current fiscal year.
As one of the typical victims of soaring U.S. interest rates, this Tokyo-based bank has seen the value of its foreign bonds shrink as rates rise, while the cost of dollar financing has surged beyond the returns on securities, ultimately leading to massive losses. Its significant losses serve as a stark warning that even traditional safe-haven assets like U.S. Treasury bonds carry risks under macroeconomic pressures.
After former CEO Kazuto Oku resigned due to accountability for last year's losses, new CEO Taro Kitabayashi took office in April and is working to rebuild its 40.3 trillion yen securities portfolio. Kitabayashi, who joined the bank in 1994, served as CFO until the end of March.
Kitabayashi is broadly exploring other asset classes, aiming to incorporate non-interest-sensitive assets into the investment portfolio. CFO Nagano stated at the briefing that the company is making investment arrangements in the areas of bonds, credit, and alternative assets.
According to the bank's disclosed documents, influenced by new investments and exchange rate factors, the scale of mortgage-backed securities held by the bank increased from 8.2 trillion yen three months ago to 8.3 trillion yen as of the end of March, accounting for 20% of the investment portfolio
