Liquidity Risk Arising from Financial Market Turmoil and Unexpected Fund Outflows

「As of 31 March 2025, market risk exposure, an estimate of potential losses, totaled ¥3,557,257 million. As of 31 March 2026, market risk exposure, an estimate of potential losses, totaled ¥2,965,155 million.」

「Like US equities, the Nikkei Stock Average plunged temporarily to the ¥31,000 range in early April 2025. It then continued to trend higher, supported by the strong US equity market and the agreement reached in Japan-US tariff negotiations, among other factors, and reached a record high in late September of the same year.」

「As of 31 March 2024, market risk exposure, an estimate of potential losses, totaled ¥4,553,233 million. As of 31 March 2025, market risk exposure, an estimate of potential losses, totaled ¥3,557,257 million.」

「The Nikkei Stock Average rose to the ¥42,000 range in July, driven by the yen's depreciation and strong earnings announcements by Japanese companies, reaching a record high. However, amid concerns about a deterioration in the US economy and further yen appreciation, it plunged temporarily to the ¥31,000 range, recording its largest-ever decline. It subsequently rose, albeit with fluctuations, reaching the ¥39,000 range temporarily in September.」

「As of 31 March 2023, market risk exposure, an estimate of potential losses, totaled ¥4,722,630 million. As of 31 March 2024, market risk exposure, an estimate of potential losses, totaled ¥4,553,233 million.」

「The US 10-year Treasury yield rose sharply to nearly 5% in mid-October as the US economy remained resilient and expectations grew that the Federal Reserve would maintain monetary tightening for longer. However, as inflation slowed, expectations of an early 2024 rate cut strengthened, and the yield fell sharply to the 3.7% range at the end of December. Japan's 10-year government bond yield rose sharply to the upper 0.9% range in November after the Bank of Japan made its yield curve control operations more flexible at the end of July and October. It subsequently fell temporarily to the mid-0.5% range in December as expectations of an early adjustment to monetary policy receded.」

「Japan's 10-year government bond yield surged above 0.5% after the Bank of Japan made its yield curve control operations more flexible at the end of July. It continued to rise moderately as expectations of further policy revisions by the Bank of Japan persisted and it followed higher overseas yields, reaching the 0.7% range in September.」

「In the foreign exchange market, as the divergence in monetary policy between Japan and the United States and Europe became more pronounced, the yen depreciated rapidly to the ¥144-per-dollar range in late June and the ¥157-per-euro range.」

「Market risk exposure (estimated loss) increased overall from ¥3,853,231 million to ¥4,722,630 million.」

「Japan's 10-year government bond yield had remained around 0.25%, but surged to the 0.4% range in late December after the Bank of Japan reviewed its operation of yield curve control, widening the range for long-term interest rate fluctuations from ±0.25% to ±0.5%.」

「The trend toward higher foreign-currency funding costs accompanying increases in overseas short-term interest rates and widening overseas credit spreads has continued against the backdrop of the protracted situation in Ukraine, substantial monetary tightening by U.S. and European central banks in response to accelerating inflation, and growing concerns about an accompanying economic slowdown. Uncertainty about the future financial and economic environment is also expected to remain high.」

「Regarding the operating environment surrounding the Bank, vaccinations against COVID-19 have progressed mainly in Japan, the United States and Europe. In Japan, the number of new infections had declined substantially from its peak in February, but the situation remains uncertain, with a sharp increase observed from July onward due to the emergence of various variants. In addition, the protracted situation in Ukraine, monetary tightening by major central banks amid growing inflationary pressures, and rising concerns about an economic slowdown have led to higher foreign-currency funding costs accompanying increases in overseas short-term interest rates and widening overseas credit spreads.」

「However, downside risks to the economy rose rapidly after Russia invaded Ukraine in late February.」

「The Nikkei Stock Average remained on a downward trend amid investor concern about delays in domestic vaccinations and the spread of infections, temporarily falling below ¥27,000 in August. In September, it surged to the ¥30,700 range on expectations for the new administration and favorable views of infection control, but subsequently remained generally around ¥29,000 amid uncertainty about the outlook for the Chinese economy, concerns about new variants and other factors.」

「The Nikkei Stock Average remained on a downward trend amid investor concern about delays in domestic vaccinations and the spread of infections, falling from around ¥30,000 in early April to below ¥27,000 at one point in August. In September, it surged to the ¥30,700 range on expectations for the new administration and favorable views of infection control, but fell below ¥30,000 at the end of September amid uncertainty about the outlook for the Chinese economy and other factors.」

「The Nikkei Stock Average remained around ¥30,000 in early April on expectations of a recovery in the global economy, but remained on a downward trend as investors reacted negatively to the spread of infections and delays in vaccinations, temporarily falling below ¥28,000 in May. It subsequently rebounded as infections were brought under control and vaccinations progressed, but concerns about a renewed spread of infections remained strong, and it moved sideways around ¥29,000.」

「The Nikkei Stock Average had fallen below ¥19,000 by early April 2020 as it priced in a sharp deterioration in economic conditions, but under large-scale economic support measures by the government and the Bank of Japan, it shifted to an upward trend on expectations of an economic recovery as major countries resumed economic activity and on higher U.S. share prices, which reached new highs. From the beginning of 2021, expectations of a rapid recovery in the global economy, supported by additional U.S. economic measures and progress in vaccinations in Europe and the United States, drove it back into the ¥30,000 range in February for the first time in approximately 30 and a half years.」

「After subsequently remaining in a range-bound market, the Nikkei Stock Average rose further toward year-end on progress in vaccine development and expectations of additional U.S. economic measures, recovering to the ¥27,000 range in December for the first time in approximately 30 years.」

「Although market turmoil caused by the spread of COVID-19 is beginning to subside, uncertainty about the outlook persists, and the Bank, whose primary source of earnings is the management of domestic and overseas securities, continues to face a challenging operating environment.」

「The Nikkei Stock Average had fallen below ¥19,000 by early April as it priced in a sharp deterioration in economic conditions, but rose on large-scale economic support measures by the government and the Bank of Japan, expectations of an economic recovery as activity resumed, and higher U.S. share prices, temporarily recovering to the ¥23,000 range in June.」

「Since the beginning of 2020, the spread of COVID-19 has led to restrictions on the movement of people and other activity, first in China from February, followed by Europe and the United States, and then emerging markets such as India, forcing economic activity to stagnate.」

「The Nikkei Stock Average rose to the ¥22,000 range in April, but fell temporarily to around ¥20,000 from May onward amid escalating U.S.-China trade friction, a decline in U.S. share prices, a stronger yen and other factors. It subsequently rose on higher U.S. share prices and other factors as U.S.-China trade negotiations progressed, temporarily recovering to the ¥24,000 range in December.」

「Japan's 10-year government bond yield remained generally between -0.1% and 0% under the quantitative and qualitative monetary easing policy with yield curve control. From August onward, it remained generally around -0.2% amid the shift toward monetary easing in the United States and Europe, growing expectations of additional monetary easing by the Bank of Japan and other factors. The yield on 10-year U.S. Treasury notes rose to the 2.6% range in April on strong economic indicators and other factors, but subsequently entered a downward trend amid concerns about the economic outlook due to escalating U.S.-China trade friction and expectations of rate cuts in the United States, falling to the 1.6% range at the end of September following a series of rate cuts.」

「Japan's 10-year government bond yield remained generally between -0.1% and 0% under the quantitative and qualitative monetary easing policy with yield curve control, before temporarily falling to around -0.2% in late June amid growing expectations of monetary easing in the United States. The yield on 10-year U.S. Treasury notes fell to below 2% in late June as expectations of rate cuts rose rapidly amid concerns about the economic outlook due to escalating U.S.-China trade friction and other factors.」

「The Nikkei Stock Average remained generally between ¥21,000 and ¥23,000 before falling temporarily to the ¥18,000 range in December 2018 amid a global decline in share prices, a stronger yen and other factors.」

「The market subsequently entered a downward trend amid a global decline in share prices, a stronger yen and other factors, reaching the ¥19,000 range in late December for the first time in 1 year and 8 months.」

「The yield on 10-year U.S. Treasury notes remained in the low 2% range despite a policy rate hike in June, owing partly to uncertainty surrounding the administration. In September, it temporarily fell to around 2.0% amid rising geopolitical risks concerning Northeast Asia and other factors.」

「The Nikkei Stock Average rose to the mid-¥17,000 range in April, partly on expectations of additional monetary easing, but plunged after the decision to hold off on easing, and at times fell below ¥16,000 in early May. The share price subsequently recovered temporarily, but in June it fell below ¥15,000 at one point as global risk aversion intensified following the UK's decision to leave the EU.」

「In the event of a significant deterioration in economic conditions, turmoil in financial markets, or a decline in the social credibility or confidence placed in the banking and financial industries as a whole, the Bank may incur losses because it may become unable to trade or settle transactions in domestic or overseas markets, or may be forced to trade at significantly less favorable prices than usual.」