Japan's smaller lenders are sitting on a ticking time bomb. Their paper losses on domestic bonds just exploded—climbing $4B in the second quarter of fiscal 2025 alone (the three months through September 30). Total damage? A staggering $21.3 billion in unrealized losses.

Put that in perspective: back in March 2024, these losses were manageable. Fast forward 18 months, and we're looking at a 260% spike. That's not a correction—that's a structural shift hitting balance sheets hard as the Bank of Japan's policy pivots reshape the entire yield curve.