Japanese banks warn: Rising JGB yields may trigger write-downs and hit profits.

Japanese banks warn: Rising JGB yields may trigger write-downs and hit profits. A major Japanese banking industry group has warned that Japanese government bond yields may continue to rise, putting banks at risk of asset write-downs and profit damage. Masahiko Kato, chairman of the Japanese Bankers Association and president of Mizuho Bank, said at a press conference on Thursday that continued increases in JGB yields could lead to asset write-downs and realized losses. He said banks may be reluctant to rush into increasing their holdings of Japanese government bonds until the yield outlook becomes clearer and policy rates peak. Over the past two years or more, rising interest rates have driven Japan's major banks to record profits by expanding loan margins. But at the same time, as yields surged, unrealized losses on the Japanese government bonds held by these banks continued to grow. So far, this has not caused major problems because banks have been able to hold these bonds to maturity. The head of Japan's financial regulator said this month that it is closely monitoring whether banks are properly managing the risks posed by rising interest rates across all their businesses, including bond holdings, corporate lending and ultra-long-term mortgages. Toshiro Ito, commissioner of the Financial Services Agency, said in an interview that, from an industry-wide perspective, paper losses are at a "manageable level," and regulators will not instruct banks and other institutions on exactly how they should handle these losses. The yield on Japan's 10-year government bond recently hit 3%, a 30-year high. Amid growing fiscal concerns, investors expect the Bank of Japan to raise interest rates further. The market widely expects the BOJ to raise its policy rate to 1.25% on Friday. Kato said the key interest rate remains accommodative and he expects the BOJ to raise rates further. He also said he hopes the new cabinet of Prime Minister Sanae Takaichi will pursue policies conducive to the stable financial markets of the country's sustainable growth. CKH HOLDINGS According to reports, Japanese Prime Minister Sanae Takaichi retained core members in a cabinet reshuffle announced on Thursday, her first cabinet reshuffle since taking office in October 2025. Analysts believe that, against the backdrop of persistently low cabinet approval ratings, Takaichi is seeking to stabilize her governing foundation and pave the way for the autumn parliamentary agenda by bringing the Japan Innovation Party into the cabinet.