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Mizuho Keeps Faith in Japan Bonds Despite Downgrade
From the Wall Street Journal of Mon, 08 Dec 2014 13:50:57 EST
Pedestrians walk past a branch of Japan's megabank Mizuho Financial Group in Tokyo.
Pedestrians walk past a branch of Japan's megabank Mizuho Financial Group in Tokyo. Agence France-Presse/Getty Images

TOKYO—The chief of one of Japan’s biggest banking groups played down the significance of last week’s downgrade of the country’s credit rating, saying his company has no plans to reduce its exposure to Japanese government bonds as a result.

Yasuhiro Sato , chief executive of Mizuho Financial Group Inc., said the bank doesn’t consider the cut by Moody’s Investors Service as a risk for its holdings of the bonds, because the dominance of domestic investors demand reduces the exposure to the more-volatile buying of foreign investors. Around 92% of the country’s bonds are held by Japanese investors.

“Moody’s has said it regards fiscal discipline as important, so I had a feeling this downgrade would happen,” Mr. Sato said in an interview Monday, a week after the move by the U.S. ratings firm, following Prime Minister Shinzo Abe ’s decision to delay a tax increase planned for next year. He said the ratings cut was largely technical.

“We have about ¥22 trillion ($181 billion) of JGBs, but we aren’t considering shedding our exposure or shortening the duration of maturities at all,” Mr. Sato said, echoing earlier remarks that Mizuho would maintain its holdings of government bonds around the ¥20 trillion mark.

Citing uncertainty over Japan’s ability to hit its debt-reduction goal, Moody’s downgraded the country’s debt by one notch to A1 from Aa3, the same rating it has assigned to Israel and the Czech Republic.

The following day, Moody’s also downgraded five banks, including the banking units of Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., giving them the same credit rating as Mizuho.

Japan’s three biggest banks have all cut back on their government-bond portfolios in recent years to limit the risk of their huge bondholdings falling dramatically in value should there be a sharp rise in bond yields.

Mitsubishi UFJ owns about ¥40 trillion of government bonds, while Sumitomo Mitsui holds ¥12 trillion. Sumitomo Mitsui has been more aggressive than its main domestic rivals in reducing its exposure to JGBs.

Still, bank executives say they aren’t worried about a plunge in bond prices as long as the Bank of Japan remains the largest buyer of JGBs in the market as it maintains its ultraeasy monetary stance.

Indeed, the market reaction to the Moody’s move was subdued. The yield on the 10-year benchmark government bond remained below 0.5% and even touched a 20-month low.

Mr. Sato also said that a weaker yen was having a negative effect on some companies such as importers and small to midsize firms, although the current level of around ¥121 to the dollar still wasn’t a cause for concern.

Smaller companies are still eager to expand globally, particularly in Southeast Asia, he said, and Mizuho is eager to provide these firms with the investment capital they need. To that end, the bank started a private-equity fund in Singapore in March last year.

“We are involved with about 200 deals,” Mr. Sato said. “I don’t get a sense that Japanese companies will come back and focus on the domestic market, because of the weaker yen.”

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