(Bloomberg) -- Japan’s financial regulator plans to examine how major banks manage risks tied to securities investment and foreign-currency liquidity as they adjust to “a world with interest rates.”

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In its annual policy guidance released on Friday, the Financial Services Agency pointed to uncertainty over the global economy and markets at a time when Japanese financial institutions are getting used to rising rates at home for the first time in years.

While the FSA didn’t directly mention risks stemming from higher rates in Japan, it said “there are changes in the financial environment such as the gradual rise in long-term interest rates and increase in volatility in the stock market.”

Japan got a taste of such volatility earlier this month when local equity indexes plunged after the central bank raised rates for the second time in 17 years. The effects of higher borrowing costs abroad have led to recent losses at Japanese firms including Aozora Bank Ltd. and Norinchukin Bank, while also triggering the collapse of some US regional lenders last year.

The policy guidance is a list of the FSA’s priorities for supervising financial institutions including brokerages, insurers, asset managers and crypto exchanges in the coming year.

The agency said it will monitor how the banks screen and manage credit default risks, especially on loans to the real estate sector in Japan and overseas. The examination of risk management on credit, securities investment and non-yen liquidity were also on last year’s guidance, highlighting their continued importance on the regulator’s watch list.

The Bank of Japan ended its negative-rate policy in March and has pledged to continue to increase borrowing costs depending on the outlook for inflation and the economy. While policy rates are unlikely to rise sharply, Japanese banks learned a hard lesson when the Federal Reserve launched an aggressive rate-hike campaign two years ago.

Norinchukin expects a net loss of about ¥1.5 trillion ($10 billion) for the year ending March 31 after making bad bets on US and European government bonds. Aozora posted a loss of almost ¥50 billion last fiscal year tied to soured US commercial real estate loans and sales of securities.

The FSA will also:



Examine how companies are disclosing strategic shareholdings meant for business relationships with corporate clients, and consider additional disclosure requirements Consider “T+1” for stock trade settlement while closely monitoring developments in overseas markets Boost supervision of major financial institutions’ groupwide management as they expand beyond international borders and traditional business lines Urge asset management firms to enhance their capabilities and products as Japan pushes to shift household savings into investment

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