Norinchukin, Japan’s top agricultural bank and one of the country’s largest institutional investors, plans to raise ¥1.2 trillion ($7.7 billion) in capital and reshuffle its foreign investment portfolio after losses on its bond holdings have increased.
The bank’s paper losses rose to ¥2.2 trillion at the end of March 2024, from ¥1.7 trillion a year earlier, the bank said in a statement. The company expects a loss of at least ¥500 billion this fiscal year.
Norinchukin has become one of Japan’s biggest victims of the rise in interest rates in the wake of the US Federal Reserve’s aggressive monetary tightening launched in March 2022. This reflects the bank’s plight in 2009, when it suffered billions in losses from investments in overseas securitized products. .
Faced with years of ultra-low interest rates at home, it followed a strategy similar to that of other Japanese banks and insurers, investing in government bonds and other foreign bonds to earn additional returns.
That strategy backfired when interest rates soared and Norinchukin, like Silicon Valley Bank and other U.S. lenders that suffered losses on their bond investments last year, were caught out. For the Japanese bank, a sharp rise in foreign currency financing costs has wiped out returns on bonds bought when interest rates were lower.
“High interest rates abroad pose problems for us,” Chief Financial Officer Taro Kitabayashi said at a news conference in Tokyo. “We will sell low-yield assets and replace them with high-yield assets.”
The bank says it has started discussions with its members about raising capital. The company expects to be able to make a profit again next financial year. The bank’s finances are healthy, even with the unrealized losses, the CFO said.
