The Japanese central bank is facing a new problem: it can run out of government bonds to buy.
BoJ is plundering more than $ 750 billion of government debt yearly in an attempt to stimulate inflation and growth. At this rate analysts believe banks could run out of government debt to sell within the next 18 months.
The Japanese central bank has fewer options if the country’s banks, which have to hold a certain amount of safe debt to use as collateral in everyday transactions, ever become unwilling to sell more of their holdings. The most obvious alternatives, pushing interest rates lower or buying other assets, have practical limitations. Meanwhile, the economic objectives of BOJ remain out of reach: Inflation is low and the yen strengthenes by about 18% this year.
The central bank has also recently been buying exchange-traded funds as another way to inject money into the economy. It now owns nearly 60% of assets managed by such funds in Japan, says Morningstar Inc., a level of ownership critics say is already distorting the market.
The BOJ holds about a third of Japan’s outstanding government bonds, a figure that analysts estimate could rise to 60% by the end of 2018. It is currently buying ¥80 trillion ($786.32 billion) worth of Japanese government bonds a year, roughly twice as much as the government is newly issuing. Some analyst believe that the bank’s future JGB-management policy will depend on market trends.
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