• Bloomberg


The Bank of Japan continued its spending spree on government debt, although the pace of increase has slowed dramatically since the introduction of yield-curve control in September 2016.

The central bank owned 39.5 percent of Japan’s bonds and Treasury bills, up from 13.1 percent when Haruhiko Kuroda took over as governor in March 2013, according to its quarterly Flow of Funds statistics released Tuesday.

The BOJ cut the amount of short-term debt it owned, while increasing bonds. The pace of bond purchases slowed, showing how the bank has stealthily tapered its buying, even while it has kept its stated purchase target unchanged.

To really understand what is happening with the bank’s debt holdings, you need to be aware that the BOJ values this in three different ways. Today’s data shows the value of the debt at the current market price, to allow a comparison of what the BOJ owns with what banks, pensions funds and others possess.

However, when analyzing what all this debt means for the BOJ, it’s more important to look at how the face value of the bonds differs from the value the bank assigns to them on its balance sheet.

The face value is the amount of money the BOJ will get back when the bond matures. The value on the balance sheet is what the BOJ says that debt is currently worth. And the BOJ has to gradually write down the ¥17.4 trillion ($156 billion) difference between the two, cutting into its income and possibly pushing the bank’s finances into the red.

As the BOJ has cut back on short-term debt, foreign investors have snapped it up. That’s because they can use cross-currency swap markets to turn the negative yields on Japanese Treasury bills into a better yield than U.S. paper.

And while the BOJ’s debt purchases and other stimulus measures have helped boost growth, it hasn’t been so successful in encouraging companies and households to invest cash holdings. Without an increase in spending and investment, it will be difficult for inflation to rise to the target of 2 percent.

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