Japan regulator to enhance bank surveillance as foreign interest rates rise

The current round of aggressive foreign interest rate rises has caught major Japanese banks off guard

Japan will step up surveillance of banks' risk control as interest rises abroad create latent losses in their foreign bond holdings, reflecting concerns about the impact of U.S. monetary tightening on the country's financial system.

The Financial Services Agency "will hold dialogues with the banks about control of market risk" because global interest rate rises had caused unrealised losses on their holdings of foreign bonds, the regulator said in annual policy guidelines released on Wednesday.

Looking for higher returns than have been available locally, major Japanese banks have invested heavily in foreign bonds, mainly U.S. Treasuries. But when yields rise, as they