(Sept 17): Japan's main bank industry group warned that government bond yields are likely to keep rising, running the risk of writedowns and a hit to profits.
A prolonged increase in Japanese government bond yields could lead to writedowns and realised losses, Masahiko Kato, chairman of the Japanese Bankers Association, said at a news conference on Thursday.
Banks are likely to wait until there's more clarity on the outlook for yields and a peak in the policy rate before building up their holdings of the nation's bonds, Kato said.
More than two years of rising interest rates have fueled record profits at Japan's biggest banks by widening margins on their loans. At the same time, the country's lenders are sitting on mounting piles of unrealized losses on their JGB holdings as yields soar. That hasn't been a big issue to date because banks have been able to hold those bonds until maturity.
The head of Japan's financial regulator said this month that he's closely monitoring whether banks are properly managing the risks of rising rates on all aspects of their business, including bond holdings, corporate lending and super-long mortgages.
Paper losses are at a "manageable level" as an industry total, and the regulator won't tell banks and others what exactly should be done about them, Financial Services Agency commissioner Yutaka Ito said in an interview.
Japan's benchmark 10-year bond yields recently reached 3% for the first time in 30 years, as fiscal concerns mount and investors brace for more rate hikes by the central bank. The Bank of Japan is widely expected to raise the policy rate to 1.25% on Friday.
Kato, who is also chief executive officer of Mizuho Financial Group Inc's main lending arm, said the key rate remains accommodative and he expects more hikes by the BOJ. He said he hopes Prime Minister Sanae Takaichi's new cabinet carries out policies that lead to sustainable growth in the country and stability in financial markets.
Takaichi retained the core of her cabinet in a reshuffle announced Thursday, consolidating her grip on power nearly a year after taking office.
Uploaded by Siow Chen Ming