Japan: Q313 Flow of Funds

  • With the BoJ’s massive monetary easing designed, in part, to drive investors out of safe assets and into riskier ones, the flow of funds data have taken on added significance providing evidence on the success or otherwise of these efforts. And, certainly, the latest data showed the direct impact of the BoJ’s actions, with its holdings of JGBs increasing by ¥15trn during Q3, to a record high of ¥129trn. This increased its share of the market (excluding bills) by almost 2ppts to 16%, the highest for more than a decade. Including bills, its share rose to more than 17%, the highest since Q498.
  • But the detail of the report suggested that there was little evidence of substantial portfolio rebalancing in Q3. Even banks, who were significant net sellers in the quarter immediately after the BoJ’s commitment to double its JGB holdings, only reduced slightly their holdings in Q3, net selling less than ¥5trn of JGBs and bills combined (compared with more than ¥20trn previously). More recent monthly data, however, suggest banks are again reducing their JGB holdings at a faster pace in Q4, with BoJ figures indicating net selling of ¥4trn in October. In spite of this, banks (including Japan Post) will continue to represent the single largest holders of JGBs, which in Q3 stood at ¥293trn, almost 36% of the market.
  • Other financial intermediaries were the largest net sellers of JGBs in Q3, by ¥2.5trn. Households were also net sellers for the nineteenth consecutive quarter and by ¥1trn, while foreigners, government agencies and public pension funds reduced their JGB holdings by around ¥0.5trn each. In contrast, insurance companies remained net buyers in Q3, for the twenty-third consecutive quarter, while private pension funds saw their JGB market share little changed at 3.8%.  
  • The data also showed the continued boost being provided to household balance sheets. The value of household financial assets rose almost 6%Y/Y in Q313 to the highest level since Q207. And despite again being net sellers of equities in Q3, the value of those holdings was up more than 50%Y/Y. While households reduced slightly their holdings of cash and currency, they still accounted for more 50% of their financial assets. And having increased their holdings in insurance and pension reserves by a similar magnitude (accounting for more than one quarter of assets) there is little sign that households have increased their risk appetite. Foreigners, meanwhile, were net buyers of Japanese stocks for the fourth consecutive quarter and by almost ¥2trn, which left their holdings up almost 85%Y/Y at the highest level for almost five years.
  • Banks increased their exposure to overseas securities markets in Q3 to the highest level since the series began in 1997. Non-life insurance companies also increased slightly their share of assets allocated abroad, to more than 11½% of their total. But while life insurers made limited adjustments in Q3, private pension funds reported a net withdrawal of funds from overseas markets for the fourth consecutive quarter, taking the share of assets allocated abroad to the lowest since Q409.

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JGB market share (%) at end-quarter

Flow of funds Dec13

Source: BoJ and Daiwa Capital Markets Europe Ltd.

Emily Nicol, Economist

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