Bank of Japan's hoard of assets is now bigger than the economy

[TOKYO] The Bank of Japan's massive asset purchase program has taken it into unchartered territory, with its ballooning holdings now larger than the country's annual economic output.

Its holding reached a staggering 553.6 trillion yen (S$6.78 trillion), figures released Tuesday show, compared with nominal gross domestic product of 552.8 trillion yen at the end of June. Data due Wednesday is expected to show the economy contracted in the quarter through September, widening the gap.

To put the milestone into perspective: the Federal Reserve's assets are about 20 perc ent of US GDP, while the European Central Bank's holdings are equal to around 40 per cent of the euro-zone economy. And while the BOJ has significantly reduced the amount of Japanese government bonds it buys, its hoard of JGBs is still expanding.

With inflation at half the 2 per cent level targeted by both the BOJ and the government of Prime Minister Shinzo Abe, asset purchases are set to continue for the foreseeable future, even if the pace of growth slows. A sales-tax hike planned for October next year, followed by an easing in demand as the building boom for the 2020 Tokyo Olympics winds down, likely mean continued pressure on the central bank to keep priming the economy.

"There's no consensus theory on how big a central bank's holdings can get before it starts getting dangerous," said Nobuyasu Atago, chief economist at Okasan Securities Co. and a former BOJ official. "There's a vague sense of unease when the holdings keep getting larger, but it's unclear at what level things should stop."

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