The Nikkei 225 is flat from February, when the Bank of Japan began dumping government securities.
Written by Wolf Richter for WOLF STREET.
The Bank of Japan’s brutal quantitative easing that became part of Abenomics’ national economic debt under Prime Minister Shinzo Abe ended in early 2013 without fanfare. After Abe announced his retirement in August 2020, Abenomics walked out the door, and the Bank of Japan began trimming its massive asset purchases in the fall of 2020.
On its balance sheet as of Oct. 31, released today, total assets at 725 trillion yen ($6.36 trillion) are down from the level at the end of August (727 trillion yen) and have been basically flat since May excluding May. Minor fluctuations:
It was the Bank of Japan shed its holdings of Japanese government securities, As of February 2021. Since then, its holdings have fallen 2.2%, or 11.9 trillion yen ($104 billion), to 528 trillion yen.
This was difficult to see at first due to the volatility of these holdings as the large long-term bond issues matured in one month and were redeemed by the government, then in one of the following months they were replaced by new securities.
These government securities account for about 73% of the total assets of the Bank of Japan. At the end of October, it consisted of 509 trillion yen of Japanese government bonds (JGBs) and 18.7 trillion yen of short-term Japanese Treasury bills. The decline in the Bank of Japan’s securities holdings since February has focused on these T-bills.
ETFs, Japanese REITs, corporate papers, and corporate bonds It was the most mouth-watering part of the Bank of Japan’s quantitative easing activities. The idea in 2013 was that a central bank with unlimited purchasing power would buy a lot of stocks and drive up the plummeting stock prices of Japan.
But the Bank of Japan hasn’t bought much before, and the sum of all these categories combined, after all these years, comes to 48.8 trillion yen, or just 6.7% of total assets. Of this, 36 trillion yen are equity ETFs, equivalent to less than 5% of the Bank of Japan’s total assets.
The Bank of Japan stopped adding to them in February 2021, and the combined group has been nearly flat ever since (red line in the chart below). The Bank of Japan holds the shares by market capitalization, and the Nikkei 225 is currently at 29,520, essentially flat as of mid-February.
loans (green line below), the second-largest line item on the BOJ’s balance sheet after government securities (purple line), including pandemic-era stimulus “special money supply operations” and a “bank loan support program” designed to stimulate economic growth by lending banking.
I’ve also included the Bank of Japan’s holdings of government securities (purple line) to get a sense of how small the purchases of stock and corporate credit are, despite all the hype about it:
The long-running chart shows that money printing was gruesome under Abenomics:
In terms of the total amount of assets it bought in dollars, the Bank of Japan ranks third among the top three quantitative easing monsters, behind the European Central Bank and the Federal Reserve. But the Bank of Japan started 21 years ago, while the Federal Reserve and the European Central Bank started 13 years ago. Now, combined, the three quantitative easing monsters hold nearly $25 trillion in assets:
- European Central Bank: $9.69 trillion
- Federal Reserve: $8.56 trillion
- Bank of Japan: 6.36 trillion dollars.
For years, central banks have gotten away with this ugly money. It increased asset price inflation, but not consumer price inflation. Japan is provided as an example. Then the Fed and the European Central Bank jumped into it in 2008, and it didn’t drive up consumer price inflation either. And every step of the way, central banks thought, “Very well so far.”
But $25 trillion of money printing by three central banks was bound to eventually lead to something, perhaps something big, just when everyone else slept about the dangers of printing money.
And perhaps we are looking at this event now, on a global scale, with inflation raging in the United States and Europe, Spoken miracles, it even started to take off in Japan, from -1.1% in April in a near-straight trend up to +0.2% in September.
Even as radical and brutal stimulus continues globally with pent-up interest rates and massive central bank balance sheets, there are now many concerns that inflation dynamics have awakened and will be difficult and painful if allowed to be tamed.
Enjoy reading WOLF STREET and want to support it? Use ad blockers – I totally understand why – but would you like to support the site? You can donate. I appreciate it very much. Click on a mug of beer and iced tea to learn how to do it:
Would you like to be notified by email when WOLF STREET publishes a new article? Register here.
Classic Metal Roofing Systems, our patron, manufactures beautiful metal panels:
- Variety of resin-based finishes
- Deep grooves for a refined, natural look
- Maintenance Free – Will not rust, crack or rot
- Resists shedding and smudging
Click here or call 1-800-543-8938 for details from Classic Metal Roofing Personnel.