Fed bailing out Japanese bank we never heard of. The reason is alarming!

Leave a CommentFed bailing out Japanese bank we never heard of. The reason is alarming!Asset Protection, News

Japanese Norinchukin Bank’s bond exposure and its decision to sell off a significant portion of its U.S. and European bond holdings could have far-reaching implications for global financial markets, particularly in the U.S. bond market.

The Norinchukin Bank’s decision to sell off a significant portion of its U.S. and European bond holdings could have a notable impact on global financial markets. The bank is set to offload approximately $63 billion in U.S. and European bonds, which could potentially lead to a decline in bond prices and a tightening of liquidity in the global financial system.

This move by Norinchukin Bank is part of a broader trend among Japanese banks, which are facing a liquidity crisis due to rising interest rates in the United States and Europe. If other major players in Japan’s banking sector follow suit and begin selling off their foreign bond holdings en masse, it could have significant ripple effects on the global financial system.

For the U.S. in particular, the impact could be substantial. Japanese investors held $1.18 trillion worth of U.S. government bonds as of March, and a large-scale liquidation of these holdings could lead to a significant decline in bond prices and a tightening of liquidity in the U.S. bond market.

Maybe this is why our Federal Bank is interfering in foreign matters?

First of all, who is the latest counterpart added to the #FED Standing Repo Facility: “Norinchukin Bank”?

Norinchukin Bank is officially described as a Cooperative Bank owned by Japanese agricultural, fishery, forestry cooperatives in Japan. However, it is one of the biggest and most sought-after clients by banks, brokers, and Fixed Income hedge funds worldwide, known by the nickname “Nochu.”

Unofficially, Norinchukin Bank is not just focused on supporting agricultural, forestry, and fishery industries in Japan. It has a “Global Investments” division that accounts for 75% of its total assets. The bank’s balance sheet is reported to be around $720 billion equivalent, with a significant portion of its investments, about 77%, allocated outside Japan.

Despite claiming strong capital and liquidity ratios, Norinchukin Bank has reported unrealized losses in its investment portfolio amounting to 2.53 trillion JPY (Japanese yen) as of September 2023. This has raised questions about the bank’s financial stability and the accuracy of its market-to-market valuations. The bank’s foreign bonds, for example, are marked to market in their Held-to-Maturity (HTM) Debt Securities books, showing only a 2.1% loss. However, the “Other Securities” books reported at Acquisition Cost show a 5.3% loss.

The bank’s significant exposure to foreign investments and its aggressive carry trade strategy have put it in a precarious position. It has 65 trillion JPY of deposits against 63 trillion JPY of illiquid assets, 73% of which are invested abroad. This situation has led to concerns that the bank could be insolvent.

The Bank of Japan (BOJ) is unable to step in and provide support directly because Norinchukin Bank holds no Japanese Government Bonds (JGBs). The BOJ’s hint at ending negative rates was short-lived, likely due to the potential impact on Norinchukin Bank.

To avoid a potential domino effect that could lead to a global financial crisis, the Federal Reserve has included Norinchukin Bank in its Standing Repo Facility. This allows the bank to access emergency funding directly from the FED, bypassing the need for the BOJ to print more JPY and risk devaluing the currency.

The inclusion of Norinchukin Bank in the FED’s Standing Repo Facility highlights the bank’s significant role in global financial markets and the potential risks it poses to the stability of the financial system. Why have we never heard of it?