BOJ hoard of assets larger than economy

Bloomberg

The Bank of Japan’s (BOJ) massive asset purchase program has taken it into uncharted territory, with its ballooning holdings now larger than the country’s annual economic output.
Its hoard reached a staggering 553.6 trillion yen ($4.9 trillion), figures show, compared with nominal gross domestic product of 552.8 trillion yen at the end of June. Data due on Wednesday is expected to show economy contracted in the quarter through September, widening the gap.
To put the milestone into perspective: the Federal Reserve’s assets are about 20 percent of US GDP, while the European Central Bank’s holdings are equal to around 40 percent of the euro-zone economy. And while the BOJ has significantly reduced the amount of Japanese government bonds it buys, its pile of JGBs is still expanding.
With inflation at half the 2 percent level targeted by both the BOJ and the government of Prime Minister Shinzo Abe, asset purchases are set to continue for the foreseeable future, even if the pace of growth slows. A sales-tax hike planned for October next year, followed by an easing in demand as the building boom for the 2020 Tokyo Olympics winds down, likely mean continued pressure on the central bank to keep priming the economy.
“There’s no consensus theory on how big a central bank’s holdings can get before it starts getting dangerous,” said Nobuyasu Atago, chief economist at Okasan Securities Co. and a former BOJ official. “There’s a vague sense of unease when the holdings keep getting larger, but it’s unclear at what level things should stop.”
The central bank held 456 trillion yen in JGBs as of November 10, up from 125 trillion yen when Governor Haruhiko Kuroda launched his first round of extreme easing in April 2013. It held 42.3 percent of outstanding of Japanese government bonds and T-bills as of the end of June.
“The BOJ has to continue its solo journey of enlarging the balance sheet to keep interest rates low,” said Masamichi Adachi, an economist at JPMorgan Chase & Co. Compared with the US and Europe, Japan has a lot more work to spur inflation, and monetary policy alone isn’t enough, according to Adachi.