First, what happened? The BOJ (Bank of Japan) holds a mountain of Japanese government bonds (JGBs).
For years, it’s been buying them aggressively as part of its monetary easing program, a fancy way of saying it’s pumped money into the economy by purchasing bonds and keeping…
— StockMarket.News (@_Investinq) June 2, 2025
BUT there’s a catch. When market interest rates rise, bond prices fall.
This is a basic rule in finance.
Let’s say you hold an old bond paying 0.5%, but now the market offers 1.5%. Why would anyone want your old bond unless you sell it for a discount?
— StockMarket.News (@_Investinq) June 2, 2025
Here’s where it gets scary.
Japan’s benchmark 10-year government bond yield jumped from 0.73% last year to 1.5% now.
That small-looking move basically doubled the cost of new borrowing and it slashed the value of old bonds on the BOJ’s books.
— StockMarket.News (@_Investinq) June 2, 2025
But wait, isn’t this just accounting noise? Yes and no.
Yes, it’s “paper” meaning they haven’t sold the bonds, so they haven’t locked in the losses.
BUT these losses weaken the BOJ’s financial standing, shake market confidence, and limit its flexibility to fight future crises.
— StockMarket.News (@_Investinq) June 2, 2025
There’s another layer here.
Japanese insurers like Nippon Life are also choking on losses ¥3.6 trillion in paper losses on their domestic bonds, plus about ¥500 billion in realized losses last year from selling bonds.
They’re dumping low-yielding debt and trying to buy… pic.twitter.com/cdBeUejY2a
— StockMarket.News (@_Investinq) June 2, 2025
Record institutional short in ultra long bonds (via futs) pic.twitter.com/Bt3m3qlpjm
— zerohedge (@zerohedge) June 2, 2025