BOJ Tops Insurers to Become Biggest Creditor to Japan Government

Japan’s central bank became the biggest creditor to the government for the first time on record, reflecting a shift driven by unprecedented easing to spur inflation in the world’s third-biggest economy.

The Bank of Japan surpassed insurance companies as the largest holder of Japanese government bonds at the end of March among categories tracked by the central bank, it said in a flow of funds report released today in Tokyo. The BOJ held 20.1 percent of the bonds, more than the 19.4 percent owned by insurers, the first time it has held the highest share in comparable data back to 1997.

The central bank buys 6 trillion yen to 8 trillion yen ($78 billion) of government bonds a month as Governor Haruhiko Kuroda works with Prime Minister Shinzo Abe to stamp out deflation. The purchases have cut liquidity in the world’s second-largest bond market and add to challenges Kuroda will face when the BOJ eventually starts to unwind the unprecedented stimulus.

“The question is whether the BOJ will be able to manage a smooth exit after building up such a huge holding of bonds,” said Hiroshi Shiraishi, senior economist at BNP Paribas SA in Tokyo. “This is a landmark that should urge Abe to accelerate his efforts to contain Japan’s ballooning debt.”

Balance Sheet

BOJ officials are considering maintaining a large balance sheet for the central bank even after it achieves its inflation target, reducing the risk of a surge in long-term bond yields, according to people familiar with the discussions.

The central bank’s purchases have helped to push 10-year government bond yields down to the lowest levels in the world, trading at about 0.6 percent, even as inflation has picked up. Consumer prices excluding fresh food rose 1.5 percent in April from a year earlier, based on a BOJ estimate stripping out the effect of a sales-tax increase.

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