Shikata Ga Nai

Norinchukin Bank, Japan's fifth-largest bank by deposits, is reported to be selling $63 billion of foreign bonds, mostly US Treasuries, after rising US and European interest rates cut the value of its high-priced bonds and widened its paper losses. The author argues that the hedging cost of holding USTs turned sharply negative as the Fed's policy rate rose above the BOJ's near -0.1%, so that FX-hedged USTs yielded less than JGBs and other banks face the same trade. The author further claims the Bank of Japan could absorb these bonds through the Fed's FIMA repo facility, which would let the BOJ hold USTs while dollars are created to fund the purchases.