Domestic Bonds

Bank of Japan’s assets quadruple to $ 6.5 tril. under Kuroda’s aggressive easing

This photo shows the Bank of Japan headquarters building in Tokyo. (Mainichi)

TOKYO (Kyodo) – Total assets held by the Bank of Japan increased to 714.56 trillion yen ($ 6.5 trillion) in fiscal 2020, according to central bank data on Thursday, quadrupling in eight years under Governor Haruhiko Kuroda’s aggressive monetary easing and growing to 1.3 times the size of the country’s economy.

Massive purchases of assets such as Japanese government bonds as part of the ultra-low monetary policy and increased financial support for companies reeling from the coronavirus pandemic widened the BOJ’s balance sheet during the year until March 31.

Before embarking on a series of bold monetary easing measures under Kuroda, the BOJ’s total assets stood at 164 trillion yen at the end of March 2013.

Total assets increased from 604.48 trillion yen in the previous year and exceeded Japan’s nominal gross domestic product of 535.72 trillion yen in fiscal 2020.

Despite aggressive monetary easing, the BOJ has yet to hit its 2% inflation target. The goal will still be unattainable when Kuroda’s term ends in April 2023, according to BOJ projections.

The asset-to-GDP ratio is higher than that of other major central banks, including the US Federal Reserve, which has also purchased assets to provide funds to the banking system.

Among the BOJ’s assets, Japanese government bonds totaled 532.17 trillion yen, up 9.5 percent from the previous year, and loans to financial institutions rose 2.3 times to reach 125.84 trillion yen.

Its holdings in exchange-traded funds, or exchange-traded investment funds, jumped 20.7% to 35.88 trillion yen. The BOJ accelerates ETF purchases in times of market turbulence.

The ETF’s holdings are currently valued at 51.51 trillion yen, with the BOJ having unrealized profit of 15.44 trillion yen at the end of March.

But the central bank would suffer an unrealized loss on holdings if the benchmark Nikkei stock average falls to around 20,000, according to its estimate. On Thursday, the Nikkei closed at 28,549.01.

The pandemic pushed the BOJ’s inflation target further away, prompting it to shift policy tools to make monetary easing sustainable while tackling side effects.

One of the changes made in the March review was to make flexible asset purchases by removing its target of buying ETFs at an annual rate of 6 trillion yen, in response to criticism that the aggressive buying of the BOJ, which made it into a Japanese Stocks, distorted market mechanisms.

BOJ policy board member Hitoshi Suzuki said on Wednesday that the central bank should continue to buy ETFs but should “limit” the pace of the rise in holdings because of its impact on the balance sheet.

In the policy review, the BOJ also decided to allow Japanese 10-year government bond yields to move into a wider range than before by adjusting its purchases, apparently in response to criticism that massive purchases of the bank had absorbed liquidity in the market.

As the BOJ seeks to keep short and long-term interest rates low and stable, it has already gobbled up large amounts of Japanese government bonds, holding over 40% of those outstanding.