jgb

Continuing to short Japan, I feel even more confident now.

The yen depreciation is just a starter; the real main course is this bomb in life insurance.
And the fuse for this bomb was lit another short length in the second quarter.

How big is the bomb? The latest data speaks

Japan’s four major life insurers—Nippon Life, Dai-ichi Life, Sumitomo Life, and Meiji Yasuda—latest disclosed Q2 results (as of end-June) show:

The unrealized losses on domestic bonds widened to 151.3 trillion yen, about $96 billion, increasing another 7% quarter over quarter

More importantly, the details:

Nippon Life has already booked an impairment of about 44 billion yen, while Meiji Yasuda booked 25.3 billion yen—this means some of their bond holdings have fallen to below 50% of cost value, triggering the impairment threshold.

On August 6, Japan’s Financial Services Agency issued a report specifically, clearly stating, "The widening of unrealized bond losses is affecting insurers’ financial accounting treatment and liquidity conditions," and that it is closely monitoring the situation.

The regulator’s stance has shifted from "monitoring" to "closely monitoring"—that’s a signal.

Why hasn’t it exploded yet?
Because life insurers’ accounting is based on "hold to maturity"—if they hold Japanese government bonds until maturity, the unrealized losses never get crystallized on the books.
As long as no one cancels their policies, the numbers remain just numbers on paper.

What they fear is policy surrenders.
Interest rates have kept rising, and the media has kept reporting losses—customers aren’t blind.

Once there’s a wave of surrenders → they need cash urgently → bonds get sold at a loss → paper losses become real losses → real losses trigger even more surrenders—this is the death spiral the market has been talking about.

The fuse has already been lit

This year in May, Japan’s 30-year JGB yield briefly surged to 4.17%, reaching a historical high since the introduction of this bond in 1999;

The 10-year also touched 2.8%, near a peak level in about 29 years.

And for life insurers, ultra-long JGBs are precisely a major investment target.

Even harsher is the political factor—Sanae Takaichi wants to expand fiscal spending.

The market worries that her policies will raise concerns about the Japanese government’s fiscal discipline, meaning rates can only be higher, not lower.

Old bonds get heavier layer by layer, while newly issued government bonds are still being added— the bomb is in the countdown.

What happens if it blows up

Life insurers cut losses → JGBs collapse → banks get blown up as well (Mitsubishi UFJ, and Sumitomo Mitsui each hold lots of JGBs) → Nikkei collapses.

This transmission chain isn’t imagination—it’s a crack that’s already starting to appear within Japan’s financial system.

#Japan $EWJ