The nation's biggest banks are running out of room to sell their government bond holdings, pushing the central bank closer to the limits of its record monetary easing.

Japan Post Bank Co. and the nation's three so-called mega-banks have almost halved their sovereign bond holdings to ¥114 trillion since March 2013, the month before the Bank of Japan began buying the securities on an unprecedented scale to end deflation. Government notes held by Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. are approaching the level where further reductions would involve securities they need as collateral.

"Banks are the first port of call" as the BOJ seeks to boost its JGB holdings by ¥80 trillion annually, said Shuichi Ohsaki, the chief rates strategist at Bank of America Merrill Lynch in Tokyo. "But they're losing capacity to cut beyond those that are reaching maturity."