BoJ's balance sheet surpasses that of the Fed

The Bank of Japan’s (BoJ) balance sheet topped ¥500 trillion as of the end of May, hitting a new milestone and surpassing the total assets of the Federal Reserve.

On May 31, the assets of the BoJ rose to ¥500.8 trillion ($4.53 trillion), compared with ¥425.7 trillion a year earlier. The total assets held by the Fed were $4.46 trillion on May 29, while the size of the European Central Bank's (ECB) balance sheet was €4.2 trillion ($4.69 trillion) as at May 26.

The BoJ's balance sheet accounts for more than 85% of the country’s 2016 GDP, the highest among all the major central banks, according the latest data from the Organisation for Economic Cooperation and Development. The assets held by the Fed are equivalent to just 24% of the country's GDP. 

The pace of purchases of Japanese government bonds (JGBs) by the BoJ has slowed in recent months. As of the end of May, the central bank held ¥390.2 trillion of JGBs, an increase of ¥70.7 trillion year-on-year but still below the ¥80 trillion target stated by the central bank.

Despite the surge in size of its balance sheet, the core inflation rate of Japan in April stood at 0.3%, well below the BoJ’s 2% inflation target. Some market observers believe the BoJ’s predictions on inflation are too bullish, and attention is focused on whether the pace of JGB purchases can be maintained.

According to the data from Yardeni Research, the total assets of major central banks, including the Fed, ECB, BoJ, and the People's Bank of China nearly tripled from $6.5 trillion in 2008 to $18.4 trillion in April 2017.

When governor Haruhiko Kuroda took the helm in April 2013, the size of the BoJ’s balance sheet was ¥162.8 trillion ($1.47 trillion), one third of the size compared to the current figure. The total assets of the Fed were around $3.23 trillion during that time.

In September 2016, the BoJ introduced "QQE with yield curve control”, which aims to keep 10-year JGB yields at "around zero", alongside a commitment to overshoot the 2% inflation target. At that time, the balance sheet stood at ¥451.86 trillion.

In the latest round of monetary policy meetings held in April, the BoJ kept its monetary policy on hold and raised its real gross domestic product growth forecast. At the same time, the central bank lowered its forecast for core inflation.