Japan's Ministry of Agriculture, Forestry and Fisheries warns: Annual losses may exceed 1.5 trillion yen, higher than previously expected.

Japan's fifth largest bank, Norinchukin Bank, currently expects its annual loss to exceed the previous estimate of 1.5 trillion yen (around 97 billion US dollars) due to the impact of global interest rate hikes. As one of Japan's largest institutional investors, Norinchukin Bank announced in June that it would sell over 10 trillion yen worth of US and European bonds within a year ending in March 2025 to offset massive unrealized losses. Similar to Silicon Valley Bank at that time, the rise in European and American interest rates led to a drop in bond prices, causing the value of foreign bonds purchased at a high price by Norinchukin Bank to shrink, leading to a sharp increase in unrealized losses. Norinchukin Bank at the time predicted that with the sale of bonds, the net loss for the fiscal year ending in March 2025 would rise to 1.5 trillion yen, nearly three times the amount during the 2008 financial crisis (570 billion yen). Norinchukin Bank is currently selling off more assets, having already sold 7.5 trillion yen in assets in the first half of this fiscal year. CEO Kazuto Oku stated that he is preparing for increasing uncertainties, including the possibility of rising US interest rates during President Trump's term, greater expected losses, and accelerated asset disposals. When asked if the annual loss could reach around 2 trillion yen, Kazuto Oku did not rule out this possibility. He pointed out that Trump's policies could exacerbate inflation and prompt the Federal Reserve to stop cutting interest rates. He added, "In the second half of the year, we will take more drastic measures to improve our investment portfolio." Data shows that Norinchukin Bank reported a net loss of 893.9 billion yen in the six months ending on September 30, compared to a net profit of 144.4 billion yen in the same period last year. Kazuto Oku stated that the bank has about 1.3 trillion yen in retained earnings to absorb the expanded losses in the second half of the year. He added that a return to profitability is imminent in the next fiscal year. Meanwhile, traders and investors are closely monitoring how Norinchukin Bank plans to reallocate its 30.4 billion dollar investment portfolio after massively selling off foreign bonds. CFO Taro Kitabayashi stated that they will invest in bonds, stocks, project financing, and mortgage-backed securities. Data shows that as of the end of September, Norinchukin Bank's mortgage-backed securities holdings decreased from 7.3 trillion yen at the end of June to 6.5 trillion yen. Additionally, the bank's bond holdings at the end of September were 26.9 trillion yen, lower than the 29.8 trillion yen at the end of June. The unrealized bond losses as of the end of September were 1.51 trillion yen, lower than the 2.3 trillion yen at the end of June. Although Norinchukin Bank is not the only Japanese bank suffering losses from holding foreign bonds during a period of Federal Reserve interest rate hikes, the timing and magnitude of its losses have attracted attention, prompting questions about what went wrong at the bank. In September of this year, the Japanese Ministry of Agriculture, Forestry, and Fisheries convened an external expert panel to review Norinchukin Bank's investment and governance structure (the bank is jointly regulated by the Japanese Ministry of Agriculture, Forestry, and Fisheries and the Japanese Financial Services Agency). It is worth noting that unlike other large Japanese banks, Norinchukin Bank has a relatively small loan business, with its investment portfolio accounting for the majority of its assets.