Japan Press Weekly

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2018 December 19 - 2019 January 8 [ECONOMY]

BOJ shoulders huge amount of Japanese government bonds

Under the Abe government, the Bank of Japan has purchased a large amount of Japanese government bonds for five and a half years and its holding of national bonds reached 470 trillion yen in November. It is abnormal for a national bank to back such a huge amount of government debt.

The currency-issuing bank buys Japanese government bonds in the financial market. The BOJ's holding of government bonds increased fourfold from 100 trillion yen in 2013. As a result, the amount of BOJ’s total assets has reached 555 trillion yen, roughly equivalent to Japan’s GDP.

The current situation has stemmed from the Abe government’s policy seeking to invigorate the stock market. In line with this policy, BOJ funds and public pension funds were poured into the stock market. The amount of such money totals 71 trillion yen. The market capitalization of all companies listed in the First Section of the Tokyo Stock Exchange stood at 644 trillion yen as of the end of September. Akahata estimated that in one-third of these companies, public funds are the “largest stockholder”.

The Abe government and the BOJ have insisted that Abe’s monetary relaxation policy will put the economy on a growth track. However, wages and personal consumption remain stagnant. Capital investment shows no signs of improvement. The economic growth rate has been far from impressive.

In the fiscal year ending March 2018, the BOJ’s negative interest rate policy delivered a blow to the profitability of private financial institutions, as shown by the fact that more than half of regional banks earned less profits than the previous year. In reaction to this situation, the BOJ in July of this year decided to partially review its easy-money policy. Still, the bank insists that the review is aimed at continuing the monetary easing policy.

On the other hand, the Federal Reserve Bank already ended its monetary easing policy and is now raising its policy interest rate in stages. The European Central Bank will put a full stop to its easy money policy by the end of this year. The BOJ is the only central bank among major economic powers which continues supplying funds to the money market on a large scale.

BOJ Governor Kuroda Haruhiko reiterated that it is too early to discuss when to end the monetary relaxation. However, the longer the BOJ maintains this policy, the more difficult it will be to end it.