QQE in action: The BoJ's flow of funds data

The BoJ’s massive easing of monetary policy announced in early April, via a commitment to double the monetary base and more than double its holdings of JGBs within two years, is in part designed to change the asset allocation strategies of Japanese investors. While still the early days of the policy, the BoJ’s flow of funds data for the second quarter released earlier today provide an insight into the impact over its first three months. In particular:

  • The BoJ increased its JGB holdings by almost ¥20trn over the second quarter to a record high of ¥112trn. This increased its share of the market (excluding bills) by almost 2½ppts to 14%, the highest since the end of 2005 and almost double its share at the end of 2009. When T-bills are also included, the share of the BoJ’s bond holdings rose to almost 15½%, the highest for more than a decade.
  • Banks reduced their exposure to the JGB market by an amount similar to the increase in central bank holdings. But given the previous dominance of the market, banks continue to represent the single largest holders of JGBs at almost 37% of the market. Insurance companies and foreign investors also reduced their shares of the market, albeit only very slightly by 0.1ppt each, while the market share of households fell to its lowest since Q204 (2.9%). In contrast, however, nonfinancial corporations and other financial intermediaries increased slightly their JGB market share in Q2, albeit still within the range seen over recent quarters.
  • Of course, having committed to increase its JGB holdings by around ¥50trn per annum, the BoJ will increase further its share of the JGB market over coming quarters. Indeed, by 10 September BoJ JGB holdings had increased to ¥125trn (around 15% of the market). And under its current policy stance, the BoJ is set to hold around 17% and 23% of the market by the end of 2013 and 2014 respectively.
  • The flow of funds data also showed the marked boost provided to private sector balance sheets from the BoJ’s easing. The value of household financial assets rose 5%Y/Y in Q213 to the highest level since Q207, partly reflecting a significant increase in the value of their holdings of equities, up more than 40%Y/Y. The value of financial assets of non-financial corporations rose more than 10%Y/Y in Q213 to its highest level since Q407 largely reflecting a more than 35%Y/Y increase the value of their domestic shareholdings. The value of foreigners’ holdings of Japanese stocks rose by 65%Y/Y, like Japanese firms and households, to the highest level since Q208. With Japanese equity market indices up again so far in Q3, Japanese households and firms should have continued to benefit from the wealth effects of the BoJ’s initiatives further supporting domestic demand in the second half of the year.
  • The BoJ’s policy also had an impact on overseas securities markets, not least via the activities of life insurance companies, which increased their exposure to overseas securities, taking the share of their assets allocated abroad to a new high. But banks made a more significant net withdrawal of funds from overseas securities markets. Non-life insurers and private pension funds made limited adjustments to their shares of assets allocated abroad.

If you would like to see the full document, please contact the authors or your Daiwa representative.

JGB holdings (¥trn) at end-Q213*JGB Holdings Chart new
*Figures in parenthesis are Q113. Source: BoJ and Daiwa Capital Market Europe Ltd.

JGB market share (%) at end-quarterJBG Holdings Table newSource: BoJ and Daiwa Capital Markets Europe Ltd.


Emily Nicol, Economist

Chris Scicluna, Head of Economic Research

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