The Bank of Japan wrote down the value of its holdings of government debt by ¥874 billion ($8.5 billion) in the last fiscal year, undercutting the income from its still profitable asset-purchase program.
With yields below zero, the central bank is buying debt at prices higher than the face value. As the bank purchases and holds debt until maturity, it doesn't value the bonds at market price but takes the markdown gradually so that at maturity the book value equals the principal.
That cost last fiscal year equaled 40 percent of the bank's interest income from the bonds it owns, according to central bank documents seen by Bloomberg. The reduction in income is poised to worsen as bond prices rise, with the yield of all Japan's debt falling below 0.1 percent.