Bank of Japan Tapers (Quietly), QE Party Over

No flashy announcement, to avoid alarming the markets.

After years of blistering asset purchases, the Bank of Japan disclosed today that it held a total of ¥521.6 trillion in assets as of November 30, including Japanese Government Bonds (JGBs), gold, corporate bonds, Japanese REITs, equity ETFs, loans, etc. That is quite a pile, so to speak. It amounts to about 96% of Japan’s GDP.

By this measure, the BOJ’s balance sheet dwarfs the Fed’s balance sheet, which amounts to 23% of US GDP. When it comes to QE, no one can hold a candle to Japan. Its holdings of JGBs alone rose to ¥443.6 trillion. Its balance sheet looks like a typical post-Financial-Crisis central-bank balance sheet on steroids (chart in trillion yen):

There a couple of differences compared to other central banks: One, the BOJ started QE long before anyone even called it “QE,” but in 2013, it really got going, and those giant moves made the prior periods of QE look minuscule. And two, the BOJ actually unwound some of its earlier QE starting in late 2005 but soon gave up on it.

Now something else has been happening: Starting in December 2016 – the month the Fed raised rates and a few months after some Fed governors started to kick around the idea publicly that QE should be unwound – the BOJ began to curtail its asset purchases.

In other words, it began to “taper.” Assets are still increasing but at a much slower rate. During peak QE – the 12-month period ending December 31, 2016 – it added ¥93.4 trillion (about $830 billion) to its balance sheet. Over the 12-month period ending November 30, 2017, it has added “only” ¥50.8 trillion to its balance sheet. Though that’s still a good chunk of money (about $450 billion), that addition is down 46%.

This chart shows the 12-month change in the balance sheet in trillion yen, going back to the Financial Crisis:

In terms of percentage change, the tapering is even clearer. In early 2014, the BOJ exploded its balance sheet by 47% year-over-year. In November 2017, the year-over-year increase was just 10.8%:

The BOJ has used QE as a politically correct pretext to bring Japan’s public debt under control by effectively removing JGBs from the market, thus strangling the market, in order to prevent a debt crisis – the kind of mess that happened to Greece.

And it didn’t have a lot of other options: By the end of 2016, Japan’s national debt had reached 250% of GDP, by far the highest in the world. By comparison, the US gross national debt just hit 105% of GDP. Between the BOJ’s vast JGB holdings, and the JGB holdings of state-owned institutions, such as the Government Pension and Investment Fund, Japanese authorities now control the majority of Japan’s national debt.

But it seems that the BOJ thinks that this might be about enough. And it has tapered its purchases.

The Fed leads, other central banks follow. But the BOJ follows no one. It’s in a universe of its own, given the debt that Japan has to deal with. Nevertheless, it has been tapering in the Fed’s tootsteps, while the Fed has been removing accommodation.

Similarly, the ECB began tapering in April 2017, reducing its monthly purchases from €80 billion in prior months, to €60 billion. And on October 26, the ECB decided to taper further, reducing its monthly purchases to €30 billion. But unlike the Bank of Japan, the ECB communicated this tapering via announcements and press conferences that were plastered all over the media, after preparing the markets for months for these announcements.

So the QE booze that the financial markets of those three economies — and of the rest of the world — have gotten drunk on is running low and will soon run out. And then it’s hangover time.

In the US, the Fed is considering the tax cuts and “elevated asset prices.” Read…  The Fed Might “Surprise” Markets with its Hawkishness in 2018

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  39 comments for “Bank of Japan Tapers (Quietly), QE Party Over

  1. B says:

    Indeed, the hangover is coming in a big way. Simply put, this is a junkie cutting back on the use of dope. Even a monthly reduction does not remove you from junkie status.

    • Tom says:

      Or perhaps they ran out of things to buy.What no sky scrapers that can be bought at world record prices x2.

  2. Major says:

    Japan essentially nationalized their economy. How long before Europe and the US must go this route?

    • Michael Fiorillo says:

      Economies are only nationalized when the state takes over companies in the name of people.

      Injecting trillions into private companies is not nationalization, it’s subsidization, using public funds to underpin private profits and power. In other words, socialize the risks and losses, but privatize the profits.

      • Bobber says:

        Seems to fit the push for tax cuts. The banks are the biggest beneficiary. Average Joe gets relatively nothing.

      • Hiho says:

        Well said. Major’s claim is both dishonest and misleading.

        I have another name for that: nationalize the losses, privatize the profits.

        Neoliberalism at its best.

  3. memento mori says:

    look at that chart, BOJ bought 500 trillions yen of securities over the last four years, they own evth now. Central planning by other means. We had to destroy capitalism to save it.

  4. JR says:

    It is pretty clear to me that if the BOJ is filming “Godzilla, the Japan Debt Monster”, that the US is shooting “Godzilla 2: No Limits”. Holding the monetized federal debt rates as close to zero as possible, so that federal debt can to as close to inifinity as possible, seems to be the plotline. Just how this movie ends is still murky, but it seems clear that there will be no deux ex machina plot twist at the end to save the day. But there seems to be some foreshadowing that fixed income (SocSec) beneficiaries could get stomped, and some screams as the dollar gets chewed up.

  5. Rob says:

    Personally, the only time since 2006 that I heard anyone in London talking about Japanese equities was recently… after they had more than doubled.

  6. Ricardo says:

    If you want to take this “nationalizing” one step further and ask the question who owns everything above and beyond the central banks then we will need to look at an organisation such as the “Club of Rome” or the UN who have both broken the world up into 10 areas of control. Such as ASEAN as an example which is made up of currently 10 countries (East Timor-Leste has applied to join to make it 11). All other areas of the world are also broken up into blocks making those 10 “areas” that will control everything. Not every block is made of 10 just that ASEAN happens to have that number. One Area/Region has just Australia, New Zealand and South Africa only. So if central banks buy up everything in this coming 10 region world then it would mean everything being owned and controlled by just a few. Think of not just a country being nationalised but whole regions. Looks to me like the master plan to global governance. Don’t ever tell me that people like the Fed or Central Banks don’t know what they are doing. They know exactly what they are doing as the plan was laid out a long time ago.

  7. Mike R. says:

    Where did the inflation go? Ideas/theories?

    Will it ever show up?

    • Bobber says:

      Increases in asset prices absent increases in underlying income streams is inflation. People who want to save cannot. Don’t listen to the Fed’s definition of inflation. They portray it as tame when it is rampant.

      Saving is a necessary part of people’s lives, so it should be in the inflation metrics.

    • rj says:

      It went to the assets of the richest .1%, and healthcare costs for the rest of us. Oh, and shrinking candy bars, growing toilet paper cardboard spools, thimble size yogurt containers, and non existent half gallons of ice cream.

      Did I mention 3 bucks for 4 packaged screws at home depot?

      • lenert says:

        Ten grand to cure your Hep C. This is where the money is going – patent and copyright rents.

      • kent says:

        “Did I mention 3 bucks for 4 packaged screws at home depot?”

        Or worse: when you only want 2 but have to pay $10 for a bag of fifty.

        Use to have a sole proprietor hardware store in my burg back in the late ’90’s, before the big boxes moved in. You could walk in with bolt, and a guy would find the matching nut. And you could walk out having spent 2 cents.

    • david says:

      To the asset classes the big money buys. Stocks, real estate, collectibles, art, etc

      • Yes, inflation has hit art and collectibles, but only some parts of the market. Really outrageously priced (and ugly) contemporary art has skyrocketed in value as boorish, nouveau riche hedge fund managers who use art as a social statement have piled into the market.

        Meanwhile, there are some pretty amazing antiques and objets d’art out there that have been largely ignored. It is possible to pick up great pieces for just a few hundred dollars right now. But no one is interested in it because…you know…bitcoin.

  8. James Levy says:

    The textbook functioning of a market economy is that profits are plowed back into production–Marx’s M–C–M1 formulation was a fair approximation of the model, although neoclassical economists would be horrified to say so even if they agree.

    Since “shareholder value” became enshrined as the be-all and end-all of the capitalist system circa 1979, this old chestnut of capitalist modelling has broken down. Profits are now gobbled up by top executives and shareholders. So where does the money for producing commodities come from? You guessed it–endless debt. Debt is now baked into the system. Nothing can get done without it, because investment and growth are no longer even marginally related to profits. Corporations have become machines that turn debt into salaries, dividends, and buy-backs. What profits were supposed to do, debt now does.

    • doug says:

      ‘ What profits were supposed to do, debt now does.’

      Interesting and astute observation…is it sustainable?

      • walter map says:


        No. The debt must be serviced. Taken to its logical conclusion, in this model, creditors will ultimately own the firm. On a national scale, or a global scale, the banksters own everything, hold all economic producers in debt peonage, and claim all economic product. Business executives are essentially paid to facilitate the transition on behalf of the FIC.

        It’s an unhappy destiny, but this course was a long time in the making and has now been firmly established.

        • walter map says:

          “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”

          – John Emerich Edward Dalberg-Acton, 1st Baron Acton

          A bit of tapering by BOJ seems unlikely to change that.

      • Petunia says:

        Technically you could say that the BOJ owns all the assets of the country in the name of the Japanese people, for their collective welfare. The problem is what they own, the debt of the US and other over indebted countries which may or may not pay.

        • John says:

          Ahh, but they will pay. One way or another. US debt is ultimately the peoples debt, enforced by gov. Try not paying your real estate taxes and see what happens. And while you personally may not own any so could care less, but somebody does and so the debt will be paid.

  9. Drango says:

    It will be interesting to see how the BOJ reacts if the Yen starts to strengthen. I think the original assumption was that asset purchases would kick start the economy. Now the sole purpose seems to be to manipulate the currency to keep it weak. Contrary to popular belief, Japanese industry will be on the edge of a precipice if the Yen climbs into the nineties to the dollar.

  10. Mike F. says:

    BOJ buying ETF’s and selling Yen with digital yen. This experiment in finance is doomed to tank the Jap markets, Jap bonds and Jap Yen.

  11. You have to be careful comparing debt-GDP ratios of nation which don’t spend on national defense, or a variety of social services. Japan is still a closed society, so there are no minority groups which make economic claims. The personal wealth effect isn’t the same, people are frugal, period. To Japan and the BOJ it’s all Kabuki theater. It doesn’t change much.

  12. George McDuffee says:

    What does “government debt” mean when most of it is owned/owed by the government to itself, or its entities? This is “smoke and mirrors,” and we urgently need a a new economic paradigm, not only because of the massive amounts of “smoke and mirrors,” but because of the geometric and synergistic advances in disruptive technologies such as artificial intelligence, robotics/automation, nanotechnology, genetic engineering, etc. as well as the rapid implementation of the “Brave New World Order” of the sovereign supranational corporations.

  13. Mike R. says:

    Where did the inflation go IN JAPAN??
    Anybody know?

    • George McDuffee says:

      Even gross increases in the money supply will not cause inflation if the money does not circulate. In Japan much of the money is in the central bank [electronic] vaults, and more is in the home safes and under Japanese mattresses because of the ultra-low interest [negative?] on savings deposits.

  14. d says:

    When you talk sense the Japanese, will listen.

    After listening, and thinking, they will frequently simply act.

    The Observers of and in Japan will notice and comment eventually.

    BOJ is not great fan of Negative news forward guidance.

    BOJ has always sought a way out of the QE conundrum with out inflicting pain on its people.

    If the Japanese had of understood truly where the plaza accord would take them and how the US would behave in the coming decades they probably would have told the US to GO JUMP.

  15. Guido says:

    Can somebody explain to me why every country cannot try out a QE, especially if it is an export based economy? As I see it, a QE for a country like India for example, will lead to a devaluation of the Rupee. This will only aid them in making their exports cheaper.

    Now, while a Devalution will lead to higher oil prices (if the oil is imported), a QE will be a sop to all those innovators who are soon going to run out of free money in Silicon Valley. They can then move to these countries and try out their latest EV innovation (Tesla could pull this off, IMO) on the locals who will gladly take the oil free version. Of course, this will require an improvement in the grid and other support related things but the QE can be used to fund them. This will then increase the gdp, stop brain drain, and lead to overall improvement in the standard of living of everybody. Not to mention that probably a huge chunk of Silicon Valley will relocate there because of the free money raining on them.

    One day, the said country can stop the QE and the previously third world country will be first world at that point.

    Can somebody please explain what is wrong with this idea?

    • Except your credit rating would suffer, (the US credit rating is based upon many things, including our military.) There is probably no reason states cannot QE corporate bonds, although states are not allowed to engage in deficit spending, you could move the assets off balance sheet, but there you go with your credit rating again. Then if you want some help from the IMF they will charge you accordingly. Europe formed a union to solve this problem.

    • d says:

      “Can somebody explain to me why every country cannot try out a QE, especially if it is an export based economy? As I see it, a QE for a country like India for example, will lead to a devaluation of the Rupee. This will only aid them in making their exports cheaper.”

      Doing QE for the reasons you suggest IS CURRENCY MANIPULATION.

      WTO sanctions and Punitive Tarrif’s, swiftly follow.

      QE is supposed to be a tool used by CB’S when there are Economic problems.

      The EU is pushing the envalope onthis and trading on the reralmes of Currency manipulation as its continued Qe is not achieving anything Now.

      EXCEPT Lowering the value of the Eur (Currency Manipulation) and staving off until tomorrow the Italian and Spanish NPL Problems.

      • Guido says:

        @Ambrose Bierce and d,
        Thank you for patiently answering my question. I did not realize that credit rating would tank and sanctions would be imposed. The meaning of currency manipulation is also more clear now. Thanks.

        • d says:

          No Problem.

          The currency manipulator, generally creates unemployment and industrial decline, in the target country of its products, Hence it is a BIG issue.

          China is the worst global currency manipulator since Pre WW I Germany.

          China has stolen entire industry’s from some nations. With its currency manipulation, indirect state ownership, and or hidden subsidies of many of its industries.

          China even managed to steal textile work, from Bangladesh.

          China now demands its economy be considered a “Market Economy” at the WTO.

          As it has been a member for the agreed minimum time.

          China declares that the only WTO requirement to be declared a market economy is to belong to the WTO for the Probationary period.

          Unsurprisingly many other nations, including the US, do not agree.

  16. Charles says:

    I think most central banks print until inflation shows its face. Most people on the planet don’t have a bank account. They nothing about interest rate changes for savings. However, they do know how much it costs when they go to buy groceries. Japan has a lot of choices here. They have tons of forex reserves, so they can always protect the yen if the yen speculation gets out of hand.

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