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BOJ Holdings of JGBs Exceed 100 Trillion Yen for First Time

The Bank of Japan’s holdings of the government’s bonds exceeded 100 trillion yen ($1.2 trillion) for the first time, raising the risk that yields will jump on perceptions that it is financing public spending.

The central bank held 104.9 trillion yen of the debt at the end of September, 11.1 percent of all government bonds, a quarterly central bank report showed today in Tokyo. The BOJ said it was the highest on record. Bond holdings by foreign investors rose to a record 9.1 percent.

The BOJ yesterday expanded its asset purchase program for the fifth time this year, with half of the 10 trillion-yen increase to be spent on JGBs. Incoming Prime Minister Shinzo Abe wants more central-bank action to defeat deflation and has pledged fiscal stimulus to stoke growth, even as he’s constrained by the world’s largest public debt.

“Doubt will increase about whether the BOJ is financing government debt given the prospects for more monetary stimulus,” said Tsuyoshi Ueno, a senior economist at NLI Research Institute in Tokyo. “Once investors start to price this in, yields will go up and Japan’s finances will be unmanageable.”

The central bank said it will buy 44 trillion yen of bonds by the end of next year through the asset-purchase fund, equal to the amount of new government bonds issued this fiscal year.

BOJ Governor Masaaki Shirakawa said yesterday that the bank will not directly finance government debt, which rose to 948 trillion yen at the end of last quarter, according to today’s report.

The BOJ has a self-imposed rule of keeping the value of its bond holdings below the amount of cash in circulation. Excluding the asset-purchase program, which the BOJ counts separately from other bond holdings, the central bank holds 67.4 trillion yen in bonds, compared with 82.5 billion yen in cash circulating.

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