QQE in action: The BoJ's flow of funds data

19 September 2013

Emily Nicol
, 
Chris Scicluna

The BoJ’s massive easing of monetary policy announced in early April, via a commitment to double the monetary base and more than double its holdings of JGBs within two years, is in part designed to change the asset allocation strategies of Japanese investors. While still the early days of the policy, the BoJ’s flow of funds data for the second quarter released earlier today provide an insight into the impact over its first three months. In particular:

  • The BoJ increased its JGB holdings by almost ¥20trn over the second quarter to a record high of ¥112trn. This increased its share of the market (excluding bills) by almost 2½ppts to 14%, the highest since the end of 2005 and almost double its share at the end of 2009. When T-bills are also included, the share of the BoJ’s bond holdings rose to almost 15½%, the highest for more than a decade.
  • Banks reduced their exposure to the JGB market by an amount similar to the increase in central bank holdings. But given the previous dominance of the market, banks continue to represent the single largest holders of JGBs at almost 37% of the market. Insurance companies and foreign investors also reduced their shares of the market, albeit only very slightly by 0.1ppt each, while the market share of households fell to its lowest since Q204 (2.9%). In contrast, however, nonfinancial corporations and other financial intermediaries increased slightly their JGB market share in Q2, albeit still within the range seen over recent quarters.
  • Of course, having committed to increase its JGB holdings by around ¥50trn per annum, the BoJ will increase further its share of the JGB market over coming quarters. Indeed, by 10 September BoJ JGB holdings had increased to ¥125trn (around 15% of the market). And under its current policy stance, the BoJ is set to hold around 17% and 23% of the market by the end of 2013 and 2014 respectively.
  • The flow of funds data also showed the marked boost provided to private sector balance sheets from the BoJ’s easing. The value of household financial assets rose 5%Y/Y in Q213 to the highest level since Q207, partly reflecting a significant increase in the value of their holdings of equities, up more than 40%Y/Y. The value of financial assets of non-financial corporations rose more than 10%Y/Y in Q213 to its highest level since Q407 largely reflecting a more than 35%Y/Y increase the value of their domestic shareholdings. The value of foreigners’ holdings of Japanese stocks rose by 65%Y/Y, like Japanese firms and households, to the highest level since Q208. With Japanese equity market indices up again so far in Q3, Japanese households and firms should have continued to benefit from the wealth effects of the BoJ’s initiatives further supporting domestic demand in the second half of the year.
  • The BoJ’s policy also had an impact on overseas securities markets, not least via the activities of life insurance companies, which increased their exposure to overseas securities, taking the share of their assets allocated abroad to a new high. But banks made a more significant net withdrawal of funds from overseas securities markets. Non-life insurers and private pension funds made limited adjustments to their shares of assets allocated abroad.

If you would like to see the full document, please contact the authors or your Daiwa representative.

JGB holdings (¥trn) at end-Q213*JGB Holdings Chart new
*Figures in parenthesis are Q113. Source: BoJ and Daiwa Capital Market Europe Ltd.

JGB market share (%) at end-quarterJBG Holdings Table newSource: BoJ and Daiwa Capital Markets Europe Ltd.

 

Emily Nicol, Economist

Chris Scicluna, Head of Economic Research

Categories : 

Back to research list

Disclaimer

This research report is produced by Daiwa Securities Co. Ltd and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange, Eurex and NYSE Liffe. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

 

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

 

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-and-regulatory. Regulatory disclosures of investment banking relationships are available at http://www.us.daiwacm.com/.

 

For more details, please contact:

Grant Lewis, Economic Research
Daiwa Capital Markets Europe Limited
5 King William Street, London, EC4N 7AX

+44 (0)20 7597 8334

grant.lewis@uk.daiwacm.com

 

For up to date Research analysis, see our blog site here.

Sign up for news/events alerts