On Breakingviews: The Credit Suisse crisis has traders wondering who’s next. Japanese lenders, with staid depositor bases, look like unlikely targets for bank runs. Yet their collective overseas bond portfolio is in focus. So it should be: petesweeneypro
For years the country’s ultra-low interest rates encouraged deposit-taking institutions, lenders and other investors to borrow yen and buy higher-yielding but relatively safe assets. This helped Japan overtake China as the top foreign owner of U.S. Treasuries in 2019; they owned an estimated $2 trillion of foreign bonds as of last year. On paper the sequence of rate hikes in Western economies make such positions even more profitable.
, the inversion of the American yield curve makes it unprofitable to borrow short-term dollars and buy long-term Treasuries. Japan Inc was reducing positions well before Silicon Valley Bank imploded.in concert, should domestic sovereign bond prices suddenly fall. Nomura puts that value of that larger bucket, including equities, at $6 trillion, with half of that hedged.
, a $32 billion institution whose parent is partly owned by the Ministry of Finance. Foreign bonds make up 34% of its assets and overseas securities generated two thirds of its gross interest income in the nine months ending in December. Its net interest margin was a parlous 0.4% during that period.incoming Governor Kazuo Ueda to normalise rates, which is bad news for lenders but also reduces the risk they will be forced to sell to cover losses on their domestic holdings.
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