Japan's Norinchukin Bank will sell over $63 billion in U.S. and European government bonds by March 2025 in an attempt to curb record-high losses.
Japan's Norinchukin Bank has announced plans to sell more than 10 trillion yen ($63 billion) of its U.S. and European government bond holdings by the end of March 2025. This move is aimed at curtailing the bank's substantial losses, which are now projected to reach a record-high of 1.5 trillion yen for the fiscal year ending March 2025.
"We plan to sell low-yield [foreign] bonds in the amount of 10 trillion yen or more," said Norinchukin Bank CEO Kazuto Oku in a statement reported by Nikkei. The bank's decision comes in response to the decline in bond values due to rising interest rates in the U.S. and Europe, which have exacerbated the bank's paper losses.
Norinchukin, which manages funds primarily from the agriculture, forestry, and fisheries sectors, has recognized the need for a drastic change in its portfolio management. As the bank holds a substantial portion of foreign bonds – approximately 42% of its 56 trillion yen in assets under management – the divestment is expected to significantly reduce its exposure to sovereign interest rate risks.
The bank's strategy involves diversifying into assets that bear corporate and individual credit risk, including equities, corporate bonds, corporate loans, private equity, and securitized products like corporate loan-backed securities and mortgage-backed securities. This diversification is intended to stave off further unrealized losses and stabilize the bank's financial profile, but there is significant doubt about the effectiveness of this strategy.
According to Bloomberg, which confirmed the earlier report by Nikkei, the bank's net loss forecast for the current fiscal year has tripled from an initial estimate of 500 billion yen. The spokesperson for Norinchukin highlighted that the final loss amount could vary based on the success of the bond sales and prevailing market conditions.
The bank's large-scale divestment will inevitably impact the U.S. bond market, where Japanese investors, including Norinchukin, are significant players. As of March, Japanese investors held $1.18 trillion in U.S. government bonds, with Norinchukin accounting for a considerable share.
To address the losses, Norinchukin is considering raising 1.2 trillion yen in capital, engaging in discussions with its main investors, including Japan Agriculture Cooperatives. The bank's upcoming annual general meeting seeks to explain the anticipated losses and capital-raising efforts to its investors.
This financial maneuver comes more than a decade after the bank's 570 billion yen loss in the year following the Lehman Brothers collapse. The forecasted loss for the fiscal year ending March 2025 is set to surpass that record by an estimated 1 trillion yen.
