The Bank of Japan may have been saddled with as much as 600 billion yen ($4.4 billion) in unrealized losses on its Japanese government bond holdings earlier this month, as a widening gap between domestic and overseas monetary policy pushed yields higher and prices lower.

At Nikkei's request, Nomura Securities, Mizuho Securities and Mitsubishi UFJ Morgan Stanley Securities estimated the state of the central bank's JGB portfolio on June 15, before its most recent policy board meeting, where it decided to maintain its ultraloose policy.

The BOJ now owns more than half of all Japanese government bonds amid a buying spree to defend its yield target against rising rates abroad, leaving its finances more exposed than ever to swings in the bond market. This could in turn spell trouble for the Japanese government, which has come to rely on the BOJ indirectly underwriting its spending with massive debt purchases.

Weakening finances would affect the BOJ's ability to keep up the massive purchases of government debt that have underpinned its easing program. As rising interest rates overseas drive up domestic bond yields, the bank has been ramping up efforts to tamp them down, expanding its fixed-rate purchase operations along with both regular and unscheduled bond buys.

These have left it with huge sums of government debt purchased at extremely low interest rates, and thus high prices. The overall yield on the BOJ's portfolio fell to 0.169% in fiscal 2021 from 0.242% in fiscal 2019. The bank is expected to hang on to its holdings for the time being, but its finances could suffer if rates increase and prices fall substantially. ...continue reading