Japan's Financial Services Agency has acknowledged that unrealized losses on bonds are impacting the finances and liquidity of insurance companies.
As of the end of June 2026, the combined unrealized losses on domestic bonds held by Nippon Life Insurance, Dai-ichi Life Insurance, Sumitomo Life Insurance, and Meiji Yasuda reached ¥15.13 trillion, a 7% increase from the end of March. Nippon Life Insurance alone accounts for ¥6.28 trillion, and has already set aside ¥44 billion in impairment losses, indicating that some of the pressure on its balance sheet is beginning to materialize into profit and loss.
However, life insurance liabilities have long maturities, and government bonds are typically used to match future payouts. Unless forced to sell, unrealized losses will not all become realized losses. Rising interest rates will also reduce the present value of insurance liabilities and increase the reinvestment returns on new funds.
But if policy surrenders increase or insurance companies replace low-interest old bonds, they will be forced to realize losses. Life insurers are traditionally major buyers of ultra-long-term Japanese government bonds; if they reduce their holdings or even sell bonds, it could create a vicious cycle of "decreased demand → continued rise in ultra-long-term bond yields → widening unrealized losses → further contraction in buying."
In summary, insurance company liabilities will limit the pace of the Bank of Japan's interest rate hikes and tapering of bond purchases, but ultra-long-term yields are also affected by fiscal expansion, government bond supply, and inflation expectations.
The Bank of Japan needs to stabilize the yen and inflation while preventing the ultra-long-term bond market from falling into a self-reinforcing sell-off.
