SVB crisis drives concern on Japan lenders’ exposure to US bonds

BLOOMBERG

The troubles at Silicon Valley Bank and its subsequent collapse have driven investor attention to the heavy investment in US bonds by Japan’s lenders, casting a pall over their shares.
SVB’s woes have been rooted in tens of billions of dollars it plowed into longer-term bonds, confident that rates would stay steady. Japanese banks have also stepped up investment in foreign debt over the past decade as outgoing BOJ Governor Haruhiko Kuroda’s aggressive monetary easing crushed domestic yields.
While there aren’t any alarm bells ringing over the health of Japan’s banking sector — with the size of foreign-debt investment significantly smaller than that for domestic securities — investors are nonetheless worried over potential losses.
The Topix Bank Index tumbled more than 7%, bringing its losses over three sessions to nearly 16%. That dragged on the broader Topix index, which led the day’s declines in Asia by falling 3%. The MSCI Asia Pacific Index shed 1.3%.
“It’s natural for equity investors to consider again the interest-rate risk of Japanese regional banks’ bond holdings,” said Michael Makdad, senior analyst at Morningstar. “I don’t think Japanese depositors face risk to their deposits in any case, but the share prices of the regional banks aren’t the same as their deposits.”
The value-at-risk of big Japanese banks’ dollar bond holdings has increased to 2.29 trillion yen ($17b) in April-June 2022, compared to 1.2 trillion yen in early 2014, according to BOJ data.