Bank of Japan Assets Exceed Japanese GDP

Japan made its own bit of history this week when the balance sheet of the Bank of Japan (BOJ) hit 554 trillion yen, a level that surpassed the nation’s annual GDP, which was last measured at 553 trillion yen according to this Reuters article.

The following two graphs help illustrate how incredible these developments are. The first shows the growth in the BOJ’s assets versus the growth (or lack thereof) in Japanese GDP since 2004.
 
Whilst Japanese economic output has grown over the last five or six years, it’s been very slow going, unlike the assets on the BOJ balance sheet, which have exploded since 2011, as the nation’s central bank has bought up a huge stockpile of Japanese government bonds, as well as stocks and ETFs.

The second chart puts the actions of the BOJ in some kind of international perspective, comparing the ratio of central bank assets to GDP for Japan, Europe, and the United States.

Whilst markets obsess over the Fed, the BOJ has amassed a balance sheet that, on a relative basis compared to the size of the economy, is five times larger.

This has profound implications for financial markets going forward, as it’s arguable that Japanese bond and equity markets can no longer function effectively without perpetual BOJ intervention.

Given this is Australia’s second largest market for exports, this will likely have an impact down under in due course, even if markets for now are far more focused on the ‘trade war’ between China and the United States.

Jordan Eliseo
Chief Economist
ABC Bullion

 
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