Total assets held by the Bank of Japan rose to ¥714.56 trillion in fiscal 2020, the central bank’s data showed Thursday, quadrupling in eight years under Gov. Haruhiko Kuroda’s aggressive monetary easing policy 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 ultraloose monetary policy and increased funding support for companies reeling from the COVID-19 pandemic expanded the BOJ’s balance sheet in the year through March 31.
At the end of March 2013, before embarking on a raft of bold monetary easing steps under Kuroda, the BOJ’s total assets stood at ¥164 trillion.
The total assets rose from the previous year’s ¥604.48 trillion, and are bigger than Japan’s nominal gross domestic product of ¥535.72 trillion in fiscal 2020.
Despite the aggressive monetary easing, the BOJ has yet to achieve its 2% inflation target. The goal will still be unattainable when Kuroda’s tenure ends in April 2023, according to BOJ projections.
The ratio of assets to GDP is larger than that of other major central banks including the U.S. Federal Reserve, which has also purchased assets to provide funds to the banking system.
Of the BOJ’s assets, Japanese government bonds totaled ¥532.17 trillion, up 9.5% from a year earlier, and loans to financial institutions rose to ¥125.84 trillion.
Its holdings of exchange-traded funds, or investment funds traded on stock exchanges, jumped 20.7% to ¥35.88 trillion.
The BOJ is stepping up purchases of ETFs in times of market turmoil. The ETF holdings are currently valued at ¥51.51 trillion, with the BOJ having an unrealized profit of ¥15.44 trillion at the end of March.
But the central bank would suffer a latent loss on the holdings if the 225-issue Nikkei stock average falls to around 20,000, according to its estimate. On Thursday, the Nikkei closed at 28,549.01.
The pandemic has moved the BOJ’s inflation goal further away, prompting it to tweak policy tools to make monetary easing sustainable while addressing the side effects.
One of the changes made in the March review was to carry out flexible asset purchases by removing the bank’s target for buying ETFs at an annual pace of ¥6 trillion, in response to criticism that its aggressive buying — which had made it a top holder of Japanese stocks — distorted market mechanisms.
BOJ policy board member Hitoshi Suzuki said Wednesday that the central bank needs to continue with ETF purchases but should “constrain” the pace of increasing holdings due to its impact on the balance sheet.
In the policy review, the BOJ also decided to allow 10-year Japanese government bond yields to move in a wider range than before by adjusting its purchases, apparently in response to criticism that the bank’s massive buying had soaked up liquidity in the market.
Through the bank’s efforts to keep both short-term and long-term interest rates low and stable, it has already gobbled up large amounts of Japanese government bonds — owning over 40% of those outstanding.
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