Japan’s financial regulator is examining how vulnerable lenders would be to a sudden slump in government bonds should the nation’s central bank pivot away from its ultraloose monetary policy in future.

At stake is around ¥151.5 trillion ($1.1 trillion) in debt held by mega-banks and regional lenders, potentially sparking a wave of markdowns if the central bank loosens its grip on 10-year Japanese government bond yields. As of March, just under two-thirds of that amount was held in government bonds, and the remainder in municipal and corporate bonds, according to data from the Japanese Bankers Association.

"Large unrealized losses could happen,” said Toshinori Yashiki, deputy director-general at the nation’s Financial Services Agency, in an interview. "If banks, including regional lenders, are forced to book large losses on securities, even temporarily, it could hurt trust in them."