Japan in a financial bind: record losses on bonds and high debts on stock market

Japan is grappling with two major financial concerns at once. The country’s largest life insurers are facing unrealised losses of as much as $96 billion on government bonds, while Japanese investors are currently trading on the stock exchange at the highest debt level since 1990. The combination makes the financial system vulnerable to further shocks.

In short:

• Japan’s four largest life insurers together hold ¥15.1 trillion ($96 billion) in unrealised losses on government bonds.
• Margin trading in Japanese stocks reaches ¥7.02 trillion ($43 billion), the highest level since 1990.
• Rising Japanese interest rates are increasing pressure on both insurers and investors.

Insurers carry record losses on bonds

Japan’s four major life insurers, Nippon Life, Daiichi, Sumitomo and Meiji Yasuda, together hold ¥15.1 trillion in unrealised losses on Japanese government bonds. This is according to company reports. The losses are mounting as Japanese interest rates rise, which reduces the value of outstanding bonds. In June 2026, the combined loss will reach a new high, as the chart shows.

As long as insurers can hold their bonds until maturity, these remain accounting losses without direct consequences. But as soon as an insurer needs liquidity for whatever reason and is forced to sell, those paper losses become real. Madelón Vos points to the dilemma Japan finds itself in: interest rates must rise to combat inflation and support the yen, but every rate increase simultaneously adds pressure on financial institutions that manage large bond portfolios.

Stock market runs on record debt

At the same time, margin trading in Japanese stocks has reached a level not seen in decades. Japanese investors are currently buying ¥7.02 trillion ($43 billion) worth of shares with borrowed money, calculated as the difference between shares bought on margin and short-sold positions. That is the highest figure since 1990, according to weekly data from the Japan Exchange Group and Goldman Sachs Global Investment Research.

High margin positions can fuel a rising market further, but they also pose a risk. In the event of a sharp price decline, margin calls can be triggered, forcing investors to sell shares. This can accelerate and deepen a correction. In an environment where interest rates are rising and bond losses are mounting, the likelihood of such a scenario is greater than normal.

Interest rates as a double-edged sword

The Bank of Japan faces a difficult choice. Further rate hikes are needed to keep inflation under control and defend the value of the yen, but those same rate increases enlarge insurers’ accounting losses and raise costs for anyone trading on debt. The financial system is thus becoming increasingly squeezed between two opposing forces.

The situation is also drawing attention in the crypto market, because turmoil in Japan’s financial system has in the past led on several occasions to broad sell-offs in risky markets. Investors in Bitcoin and other cryptocurrencies are therefore keeping a close watch on developments in Japan.