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Japan finance institutions face huge losses on government bonds if yields rise

Kyodo

Japanese financial institutions with huge government bond holdings face large appraisal losses if yields rise, a Finance Ministry estimate showed Monday.

If yields of outstanding bonds climb 1 percent across the board, the value of outstanding government bonds would drop by an estimated ¥67 trillion, or 13.5 percent of nominal gross domestic product in fiscal 2015, according to the ministry.

Under similar circumstances, the ratio was higher than 2.5 percent in Germany as a percentage of its GDP, 4.3 percent in the United States, 5.2 percent in France and 13.3 percent in Britain, the ministry said.

The provisional calculation was presented at a meeting of the ministry’s expert panel to discuss the government’s bond issuance plan for fiscal 2017.

Yields move inversely to bond prices, and bonds with longer maturity dates are susceptible to larger price declines.

Since Japan issues a massive amount of government bonds with a maturity averaging 8.4 years, the risks stemming from price declines are higher in Japan than in those other countries, the estimate showed.

Under the Bank of Japan’s negative interest rate policy, which pushes down market interest rates for bonds, the government is increasing the issuance of superlong government bonds.