BOJ Posts Record Loss on JGB Holdings Amid Tightening Move

By Megumi Fujikawa

TOKYO--The Bank of Japan posted a record loss on its massive holdings of Japanese government debt during the first half of its fiscal year, reflecting its shift toward higher interest rates and the subsequent surge in bond yields.

The BOJ said Wednesday that its unrealized losses on JGB holdings amounted to 32.826 trillion yen, equivalent to $210.34 billion, for the six months ending in September. That compared with a Y28.625 trillion loss during the prior half-year period ending in March.

The widened loss comes in the wake of the central bank's normalization of monetary policy, which has been pushing up yields on Japanese government bonds.

Those losses could widen further. JGB yields have been on an upward course since Prime Minister Sanae Takaichi took power in October, fueled by worries that her administration will roll out expansive policies that will worsen debt conditions in Japan.

But while corners of the market have been concerned, some say the fears are overdone.

"The uptick in bond yields that followed the package's announcement is not worth losing sleep over," said Stefan Angrick at Moody's Analytics.

While the initiative may feel like a sweeping fiscal push, the details paint a more measured picture, the economist wrote in a note. The fiscal spending and tax cuts announced only marginally exceed the packages deployed under the former two prime ministers in nominal terms, Angrick said.

Measured relative to the economy's size, Takaichi's package sits slightly below the previous two, at 3.3% of gross domestic product. Plus, "the additional spending comes in the context of an enormous fiscal contraction that has seen Japan's government deficit narrow from 10% of GDP to effectively 0% in a few short years," he added.

The yield on benchmark 10-year JGBs stood at 1.800% on Wednesday, compared with 1.645% at the end of September. The BOJ has said any losses on JGBs don't affect its monetary policy because it holds bonds to maturity.

The BOJ's statement also showed that, for the first time ever, the interest income earned from the bank's JGB holdings fell below its interest payment on reserves, a sign of balance-sheet deterioration.

Meanwhile, the central bank reported record Y46 trillion of paper gains on its holdings of exchange-traded funds as of the end of September.

Japan's equities markets have risen steadily during the fiscal first half, backed by solid corporate earnings and a global artificial-intelligence boom.

Strategists at Morgan Stanley think the momentum will continue.

The Takaichi administration is likely to implement market-friendly policies, including an emphasis on defense spending, domestic technology investment and de-regulation, they wrote in a report.

"Moreover, there is the prospect of a snap election in 1H26, which has tended to be associated with a positive market environment," they said.

The BOJ plans to gradually reduce its ETF holdings, a process which Gov. Kazuo Ueda has said may take 100 years.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

November 26, 2025 04:12 ET (09:12 GMT)