Bank of Japan's unrealized bond loss widens to $68 billion as yields jump

TOKYO (Kyodo) -- The Bank of Japan's unrealized loss on its government bond holdings increased to about 8.8 trillion yen ($68 billion) at the end of December, after it decided to widen the yield trading band for 10-year Japanese government bonds, Governor Haruhiko Kuroda said Friday.

The loss was roughly 10 times larger than the end of September when it stood at 874.9 billion yen, as government bond yields rose on expectations that the BOJ would tighten its monetary policy.

The revelation underscores the challenge facing the central bank, which owns about half of outstanding state debt to keep borrowing costs at low levels. The unrealized loss does not immediately impact the BOJ as it makes a point of holding government bonds until maturity.

The market value of the central bank's bond holdings was 555.30 trillion yen at the end of December, compared with a book value of 564.10 trillion yen, Kuroda told a parliamentary session.

The BOJ decided at its December meeting to allow 10-year bonds to trade between minus 0.5 percent and 0.5 percent, wider than the previous range of minus 0.25 percent and 0.25 percent. It has been stepping up bond buying to prevent the benchmark yield from rising above the newly set ceiling.

The trading band expansion was interpreted by financial markets as an effective interest rate hike, despite the BOJ's insistence that it was aimed at fixing distortions in the bond market, not a harbinger of monetary tightening.

The BOJ's balance sheet has swollen after years of aggressive asset purchases to support the economy and achieve its 2 percent inflation target. Analysts expect a tough road ahead for the central bank when it decides to exit from its current accommodative monetary policy.