Japan’s leading “city banks” sharply reduced their bond exposure selling a net worth of Y2,170 billion in yen bonds in December, mostly government bonds (JGBs), says the Japan Securities Dealers’ Association.

Analysts believe that the sale of the largest amount in this fiscal year is explained by profit-taking motives.

John Richards, a strategist at Barclays Capital in Tokyo, said: "Their lack of JGB buying reflects a more bearish long-run view on the direction of [interest] rates, which in turn is fundamentally based on their belief that the current recovery is sustainable."

The reduction in bond exposure could signify a shift in the strategies of Japan’s leading banks as they began to cut their ratios of bad debt. Three out of four top banks, Mizuho, SMFG and MTFG, have met the government’s target of halving their non-performing loans, and only UFJ failed to comply.

The Japanese government has already voiced concern about the concentration of JGBs in the portfolios of a handful of major banks, trying to shift a larger proportion into the hands of foreign investors.