(Bloomberg) -- Norinchukin Bank is considering raising 1.2 trillion yen ($7.7 billion) to boost capital and cover losses arising from a plan to get rid of low-yielding foreign bonds, a person familiar with the matter said.

The Tokyo-based bank, best known as one of the world’s biggest buyers of collateralized loan obligations, may book about 500 billion yen in losses for the current fiscal year through March 2025 as a result of restructuring its securities portfolio, said the person, who asked not to be named because the information is not public.

A Norinchukin spokesman said nothing has been determined and declined to further elaborate. The bank is unlisted, with capital funded by the country’s agricultural cooperatives, and is set to announce its results on Wednesday. Nikkei first reported on the fundraising plan. 

The agriculture, forestry and fisheries bank is one of Japan’s largest institutional investors with a 55.9 trillion yen securities portfolio, and bonds make up more than half of its investments. 

Norinchukin and other Japanese banks have been investing in Treasuries and other foreign bonds to seek extra yields, given the ultra-low interest rate environment at home. The strategy backfired when the US Federal Reserve started an aggressive rate-hike campaign two years ago to tame inflation, driving up funding costs and decimating returns from these investments. 

Megabanks and regional banks in the country have already sold off their foreign bonds over the past few years, thus limiting risk, according to Toyoki Sameshima, an analyst at SBI Securities Co. 

“There has been a considerable difference with the megabanks,” said Shoichi Arisawa, an analyst at Iwai Cosmo Securities Co. This is unlikely to have a big effect on the Japanese financial system, but there needs to be an explanation that there is no concern about the future of Norinchukin’s business, Arisawa said.

The bank plans to dispose of these bonds in the current fiscal year at a loss, as their value has fallen, the person said.  

Norinchukin’s paper losses on its bond holdings stood at 1.9 trillion yen as of December 2023, widening from 334.3 billion yen in March 2022, when the Fed began raising rates and it started seeing losses in this area.

(Updates with analyst’s voice in sixth, seventh paragraphs)

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