• Bloomberg


Japanese institutional investors are more exposed than ever before to potential losses if interest rates rise, as Finance Minister Jun Azumi extends a decade-long campaign of increasing longer-term debt.

The duration of Japan’s securities, an estimate of how much prices will change when yields rise or fall, advanced to 7.76 years on Sept. 3, the longest on record going back to January 2000, according to Nomura Securities Co.’s Bond Performance Index. The figure is used as a benchmark by investors, including Japan’s Government Pension Investment Fund, the world’s largest. The risk measure for Treasurys was 6.07 years, a Bank of America Merrill Lynch index shows.

Japanese institutional investors, which hold ¥273 trillion ($3.5 trillion) of the nation’s government bonds, face unprecedented losses from interest-rate swings at a time when policymakers are seeking to trim the world’s largest debt and end more than a decade of deflation. A fund manager who invests $100 million in the BPI Index would lose $7.76 million if yields rise 1 percentage point, 36 percent more than the possible liabilities in 2000, data compiled by Bloomberg show.

“Bond yields could rise anytime, so the government may be thinking it should borrow as much as it can when possible,” said Akihiko Inoue, chief strategist at Mizuho Investors Securities Co. in Tokyo, one of the 25 primary dealers obliged to bid at government debt sales. “The risks investors face from rate fluctuations are rising.”

Debt that’s 20 years or longer will account for 14 percent of total planned issuance for this fiscal year, which started April 1, according to a report from the ministry. Such securities made up 4.6 percent of the total a decade ago. The average to maturity for Japan’s outstanding bonds was seven years for the 12-month period that ended March 31, up from four years and 11 months in 2002, ministry figures show.

Slower growth and a decade of deflation have prompted lenders to funnel customer deposits into Japan’s debt rather than loans, weighing on bond yields. The nation’s benchmark 10-year securities yield was 0.795 percent Wednesday, the lowest globally after Switzerland and Hong Kong.

Domestic banks owned 16 percent of Japan’s ¥919 trillion in bonds as of March 31, figures from the Bank of Japan show.

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