Two organisations from the Japanese prefecture of Oita stand to lose up to JPY300m ($3.7m) after they bought structured products linked to the USD/JPY exchange rate.
Oita's association for the employment of the disabled paid JPY200m in July 2004 for a note issued by EBRD (European Bank for Reconstruction and Development) due to mature in 20 years. The product provided 3.75% pa for the first two years but for the remaining years depended on the dollar strengthening against the yen. The association has received no interest since July 2010. This year will also be a poor one unless the yen weakens to JPY 88.11 on the dollar, from around JPY80 currently.
Meanwhile, the prefecture's organised crime control committee bought a note in 2006 for JPY100m, issued by German bank KfW. It has a rate of 5.5% pa, but with a similar reliance on the weakening yen the committee has received no interest since March 2009.
Both notes guarantee principal upon maturity but impose severe penalties for early redemption.
"We'd like to invest in a non-risky way from now on," said the organisations in a joint statement.
They added that that the outcome of the notes was unexpected and that some gains had been made. They have now invested in a national loan to continue doing business.