TOKYO -- Japanese banks are shedding government bonds at an accelerating pace, slashing their total holdings at the end of January to a 14-year low.
The value of Japanese government bonds held by domestic banks was 79.59 trillion yen ($693 billion) as of Jan. 31, the Bank of Japan said, falling below 80 trillion yen for the first time since 2003. The central bank introduced radical easing steps in April 2013 and a negative-interest-rate policy in February 2016, driving down yields. With no hope of reaping any profits from these bonds, Japanese banks have been trimming their holdings.
Interest rates have been rising internationally since November's U.S. presidential election, further spurring the banks to take JGBs out of their portfolios. The banks were purchasing large amounts of higher-yielding U.S. government bonds, but expectations that President Donald Trump will engage in aggressive fiscal stimulus have produced a spike in U.S. interest rates and sent bond prices plummeting. In response, domestic banks "sold Japanese government bonds to cover the losses," said Kazuhiko Sano of Tokai Tokyo Securities.
Regional banks, relatively weaker in portfolio management, have been prominent in this trend. They amassed net JGB sales of 246.7 billion yen in November and 277.6 billion yen in December, according to the Japan Securities Dealers Association.
This is a concern for the Financial Services Agency, which plans to examine foreign bond investments by regional banks. "It will become tougher for regional banks to invest in overseas bonds," said Katsutoshi Inadome of Mitsubishi UFJ Morgan Stanley Securities.