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.