Japanese lenders should take stress tests to assess their ability to withstand swings in bond prices as the central bank's unprecedented monetary stimulus saps trading volumes, one of its former executives said.
A measure of price swings in government bonds briefly jumped to a five-year high two months after Bank of Japan Gov. Haruhiko Kuroda's board boosted debt purchases last April. Since the BOJ's buying reduces securities in circulation, volatility may rise again and heighten the risk of losses for domestic lenders who hold ¥132 trillion ($1.3 trillion) of the notes, according to Kenzo Yamamoto, formerly BOJ executive director in charge of financial system stability.
"If market rates continue to stay this low, financial institutions could be faced with behavior unseen in the past," Yamamoto, now chairman of NTT Data Institute of Management Consulting Inc., said in an interview in April. "Financial institutions should conduct stress tests that go beyond historical data."