Mizuho Foreign-Bond Misadventure Follows Mass Japan Shift Abroad

(Bloomberg) -- The loss on foreign bond holdings unveiled by Mizuho Financial Group Inc. Wednesday is in part the consequence of a mass shift by Japanese financial institutions into overseas assets in the past decade.

With Japan's central bank buying the vast majority of annual government-bond issuance since Governor Haruhiko Kuroda took the helm in 2013, and targeting rock-bottom interest rates across much of the yield curve, the country's big asset managers have had to go elsewhere.

Foreign bonds have been a popular choice. Japan's megabanks -- Mizuho, Sumitomo Mitsui Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. -- held some 37 trillion yen ($331 billion) in foreign bonds as of December, according to data compiled by Michael Makdad, a Morningstar Inc. analyst in Tokyo.

The megabanks' stockpile is just a portion of a 142 trillion yen total held by Japanese lenders, according to the most recent data compiled by Makdad, who specializes in financial institutions and previously worked at Moody's Investors Service. That total is up from just 48 trillion as of March 2009, according to Makdad.

Limited Options

“There are lots and lots of deposits and not enough loans, so Japanese banks have had the incentive to go outside,” Makdad said in an interview in January on overseas financial risks tied to Japanese lenders. “Certainly the BOJ policy in place now for many years to keep rates extremely low -- absolutely it's a contribution” to the accumulation of overseas assets, he said.

The biggest single holder of foreign bonds is Japan Post Bank Co., at 62 trillion yen in December, Makdad's records show. Norinchukin Bank, the agricultural lender that has dived into U.S. CLOs, had 27 trillion as of September, according to Makdad.

Mizuho said Wednesday that overseas bonds accounted for about 150 billion yen of a “negative carry” charge. Negative carry refers to returns that fail to exceed the cost of financing the purchase of an asset. The bank didn't elaborate on the nature of the losses.

Read about Mizuho's loss here.

To contact the reporter on this story: Christopher Anstey in Tokyo at canstey@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cormac Mullen, Andreea Papuc

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