The Bank of Japan could incur an unrealized loss of 28.6 trillion yen ($211 billion) on its holdings of Japanese government bonds if yields rise by 1 percent, a deputy governor said Friday.
The estimate made by Deputy Governor Masayoshi Amamiya at a parliamentary session highlights the difficulty that the central bank would face if it decides to exit years of bold monetary easing that has expanded its balance sheet.
An appraisal loss means the market value of government bonds held by the BOJ is below their book value. A 5-percent rise in interest rates would mean a 108.1 trillion yen loss.
Bond prices have fallen and yields risen as major central banks raise rates to fight inflation. The BOJ, however, has not budged over its stance of keeping ultralow rates, with no immediate change in sight.
Despite the estimated massive losses, the BOJ has made it a point of holding government bonds until maturity and Amamiya dismissed any immediate impact on the central bank.
"Even if we see unrealized losses increase in the short term, this will not undermine our ability to guide monetary policy," he told a session of the Budget Committee in the House of Councillors.
Amamiya has played an instrumental role in monetary policy planning and is seen as one of the viable candidates to succeed Governor Haruhiko Kuroda, whose term ends next April.
The BOJ said Monday it logged an appraisal loss in the six months to September of 874.9 billion yen on bond holdings, the first red ink under Kuroda, who took the helm in 2013 and led a spate of monetary easing steps.
The BOJ has been buying unlimited amounts of 10-year bonds to prevent the key yield from rising above its allowed limit of 0.25 percent. It holds about half of outstanding Japanese government bonds.
