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Too little too late to help the yen that got mauled by 10 years of rampant QE.
Too little too late to help the yen that got mauled by 10 years of rampant QE.
By
The Bank of Japan had announced at its meeting on July 31, 2024, that it would start QT, and it’s showing up on the balance sheet. It started shedding its holdings of corporate bonds and commercial paper in mid-2022, and a big portion is now gone. Its huge government bond holdings peaked in February 2024, and have zigzagged lower ever since. It also has a loan portfolio, and those loans had risen, which had caused its overall assets to inch up through August 2024, despite the decline in its bond holdings. But for the past five months, even the loans have been declining, and the overall balance sheet has been shrinking.
Japanese government securities: -¥18 trillion (-$114 billion), or -3.1%, from the peak in February 2024, to ¥582 trillion ($3.68 trillion) on the balance sheet at the end of December, released today. They’re now below where they’d first been in January 2023.
They account for 78% of total assets and have been zigzagging lower since their peak in February 2024. The BOJ’s JGB holdings run on a three-month cycle: One month, a pile of long-term bonds mature and come off the balance sheet, then over the next two months, as the BOJ purchases replacement bonds, its holdings rise in smaller increments.
Commercial paper and corporate bonds: -¥5.0 trillion from the peak in May 2022, to ¥6.6 trillion ($42 billion). The BOJ stopped buying commercial paper and corporate bonds in early 2022. And its holdings have been running off the balance sheet as they mature. They now account for less than 1% of the total.
Bank of Japan Balance Sheet: QT Takes Off, Assets Drop to Lowest in 15 Months
by Wolf Richter • Jan 7, 2025 • 32 Comments
Too little too late to help the yen that got mauled by 10 years of rampant QE.
By Wolf Richter for WOLF STREET.
The Bank of Japan had announced at its meeting on July 31, 2024, that it would start QT, and it’s showing up on the balance sheet. It started shedding its holdings of corporate bonds and commercial paper in mid-2022, and a big portion is now gone. Its huge government bond holdings peaked in February 2024, and have zigzagged lower ever since. It also has a loan portfolio, and those loans had risen, which had caused its overall assets to inch up through August 2024, despite the decline in its bond holdings. But for the past five months, even the loans have been declining, and the overall balance sheet has been shrinking.
Japanese government securities: -¥18 trillion (-$114 billion), or -3.1%, from the peak in February 2024, to ¥582 trillion ($3.68 trillion) on the balance sheet at the end of December, released today. They’re now below where they’d first been in January 2023.
They account for 78% of total assets and have been zigzagging lower since their peak in February 2024. The BOJ’s JGB holdings run on a three-month cycle: One month, a pile of long-term bonds mature and come off the balance sheet, then over the next two months, as the BOJ purchases replacement bonds, its holdings rise in smaller increments.
Commercial paper and corporate bonds: -¥5.0 trillion from the peak in May 2022, to ¥6.6 trillion ($42 billion). The BOJ stopped buying commercial paper and corporate bonds in early 2022. And its holdings have been running off the balance sheet as they mature. They now account for less than 1% of the total.
Equity ETFs and Japanese REITs: The BOJ stopped buying equity ETFs and J-REITs in 2021, when they’d reached about ¥38 trillion ($240 billion), and have remained essentially unchanged since then.
The BOJ carries them at cost, not at market value. It would have to sell them outright to get rid of them because they don’t mature and come off the balance sheet automatically, like bonds do. And it obviously has no appetite for hammering the Japanese stock market by telling everyone that it’s selling its ETFs and REITs.
During QE, the US financial media hyped those ETF purchases as if they were a huge deal, though they were always just a small part of its assets, currently 5% of the total.
Loans: ¥109 trillion ($690 billion), lowest since June. They account for 14% of total assets. The BOJ handed out loans to banks and other entities under several programs, including the massive pandemic-era loans, a big part of which has been unwound. The total amount of loans outstanding had more than tripled from ¥49 trillion in February 2020 to ¥152 trillion at the peak in March 2022:
Total assets: -¥17 trillion (-$108 billion) from the peak, to ¥748 trillion ($4.73 trillion), the lowest since September 2023.
In addition to the QE-related assets above, they include gold, coins held for circulation, and foreign currency.
The yen paid the price for QE in 2012-2022.
The BOJ’s grand money-printing era started in 2012 under the doctrine of Abenomics and lasted into 2024. During this period, the yen plunged by 46% against the USD, from 85 YEN to the USD in 2012, to 157 now. The exchange rate is where the free money came home to roost.
The minuscule QT so far and the hair-thin rate hikes so far have not changed the equation for the yen. Japan’s annual CPI inflation was back to 2.9% in November, the highest since August, and the second highest since October 2023.
Due to persistent trade deficits, the crushed yen is not good for Japan.
Japan has run annual trade deficits every year since 2010 except in 2016 and 2017. In other words, it has imported more than exported. And the crushed yen has made these imports more expensive, has widened the trade deficit, and has added to inflation.
In addition, all major Japanese manufacturers have offshored a portion of their production. For example, most of the Japanese vehicles Americans can buy are made in North America, and many components are made in North America, China, Thailand, and other countries, and a weak yen doesn’t make them more competitive. The weak yen only helps when Japanese companies translate their foreign revenues and earnings into yen for their yen-denominated financial statements. But that’s only a paper benefit.