Japan¡¯s financial regulator is examining how vulnerable lenders would be to a sudden slump in government bonds should the nation¡¯s central bank pivot away from its ultraloose monetary policy in future.
At stake is around ?151.5 trillion ($1.1 trillion) in debt held by mega-banks and regional lenders, potentially sparking a wave of markdowns if the central bank loosens its grip on 10-year Japanese government bond yields. As of March, just under two-thirds of that amount was held in government bonds, and the remainder in municipal and corporate bonds, according to data from the Japanese Bankers Association.
¡°Large unrealized losses could happen,¡± said Toshinori Yashiki, deputy director-general at the nation¡¯s Financial Services Agency, in an interview. ¡°If banks, including regional lenders, are forced to book large losses on securities, even temporarily, it could hurt trust in them.¡±
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