BOJ incurs record losses on bond holdings as yields rise

5:40 am Wednesday, November 27th, 2024

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) -The Bank of Japan suffered record valuation losses on its government bond holdings in the first half of the fiscal year as its interest rate hikes pushed up bond yields, the bank’s earnings report showed on Wednesday.

Central banks typically see the value of their bond holdings fall when they raise interest rates, as such moves weigh on bond prices which move inversely to yields.

The central bank’s bond holdings incurred valuation losses of 13.66 trillion yen ($90.03 billion) in the six months to September, bigger than the 9.43 trillion yen loss registered in March, the earnings report showed.

The BOJ’s holdings of long-term government bonds stood at 582.99 trillion yen at the end of the fiscal first half, down 1.6 trillion yen from a year earlier and marking the first decline in 16 years.

The central bank’s holdings of exchange-traded funds reaped paper profits of 33.07 trillion yen, down from 37.31 trillion yen in March, the report showed.

The BOJ ended negative interest rates and stopped buying risky assets such as ETFs in March in a landmark shift away from a decade-long, massive stimulus programme.

In July, it raised short-term interest rates to 0.25%, and laid out a plan to taper its huge bond buying in an effort to scale back its huge balance sheet.

The BOJ said it reaped 1.26 trillion yen in dividends from its ETF holdings in the April-September fiscal first half, up from 1.14 trillion yen in the year-before period.

Such proceeds helped offset losses the BOJ incurred to push up borrowing costs, such as by paying interest to excess reserves financial institutions park with the central bank.

The BOJ paid 392.2 billion yen worth of interest to excess reserves parked with the central bank in the fiscal first half, 4.3 times the amount it paid a year ago, the report showed.

($1 = 151.7200 yen)

(Reporting by Leika Kihara and Takahiko Wada; Editing by Muralikumar Anantharaman and Christina Fincher)