Japan's Norinchukin Bank is considering a capital increase of about 1 trillion yen ($6.4 billion) to bolster its financial standing that is undermined by unrealized losses from its holdings of overseas bonds, including U.S. Treasuries, a source familiar with the matter said Sunday.

Norinchukin will discuss the matter with its main investors such as the Japan Agricultural Cooperatives, as it could post a net loss of around 500 billion yen in the year ending March 2025 due to the disposal of the unrealized losses.

The bank is likely to use subordinated loans, which have a lower repayment priority and count as capital, while foreign bonds with unrealized losses will be sold and replaced with more profitable assets. Its capital stood at 4.04 trillion yen at the end of December 2023.

Norinchukin has focused on investing in U.S. Treasuries, which have higher yields than Japanese government bonds. Since March 2022, however, the United States had been raising interest rates at a rapid pace to counter inflation.

As the prices of bonds fall as yields rise, the unrealized losses in U.S. Treasuries and other bonds purchased by Norinchukin have increased to approximately 1.9 trillion yen.

Compared with domestic megabanks and other financial institutions, Norinchukin has smaller loans and a higher ratio of foreign bonds in its securities portfolio. Its earnings are more susceptible to repeated interest rate hikes by central banks.

Norinchukin also suffered losses following the 2008 global recession, and in 2009 increased its capital by over 1.9 trillion yen.

==Kyodo