TOKYO: The Bank of Japan’s long-term government bond holdings fell for the first time in 16 years as of end-March as it tapered bond purchases, its earnings showed on Wednesday (May 28), in another sign of its steady retreat from a massive decade-long stimulus policy.
As a result of its interest rate hikes, the central bank paid ¥1.25 trillion (US$8.3 billion) in interest on excess reserves parked at the BOJ in the fiscal year that ended in March – a move aimed at mopping up liquidity from the market to nudge short-term borrowing costs around its 0.5 per cent policy rate.
As its monetary tightening drove down bond prices, the BOJ’s government bond holdings incurred valuation losses of 28.6 trillion yen, the largest since the BOJ began using current accounting methods in 2004, its 2024 fiscal year earnings showed.
The earnings data highlight the cost the BOJ is paying to normalise monetary policy and whittle down a balance sheet that has ballooned from years of heavy bond buying.
The BOJ exited a massive stimulus programme in March last year and pushed up short-term interest rates to 0.25 per cent in July and 0.5 per cent in January. It also began slowing its huge bond purchases under a taper programme laid out in July.
The central bank’s holdings of long-term Japanese government bonds (JGB) stood at ¥574.2 trillion as of the March end of fiscal 2024, down ¥11.4 trillion from a year earlier, marking the first decrease since 2008, its earnings showed.
Its total government bond holdings, including short-term debt, fell ¥13.7 trillion to ¥575.9 trillion, he earnings showed, declining for the first time in three years.
The BOJ has signalled its readiness to keep tapering its bond buying. At its policy meeting next month, it will conduct an interim review of its bond tapering plan running through March and come up with a programme for April 2026 onward.
Many market players expect the BOJ to make no big changes to its existing taper plan and believe it will likely maintain or slightly slow the pace of tapering from April 2026 and beyond.
While describing the BOJ’s balance sheet as too big, Governor Kazuo Ueda said in March it was hard to predict how much it ought to reduce its size which, at around ¥745 trillion, exceeds the size of Japan’s gross domestic product.
